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Microfiche 

Series. 


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Collection  de 
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Tachnical  and  Bibliographic  Notas/Notas  tachniquas  at  bibiiograpliiquas 


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I      I   Coloured  plataa  and/or  illustrations/ 


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I — I  Pages  damaged/ 

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I — I  Pages  discoloured,  stained  or  foxed/ 

I      I  Pages  detached/ 

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I      I  Includes  supplementary  material/ 

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Douglas  Library 
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method: 


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1  2  3 


1 

2 

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4 

5 

6 

■WHH 


HISTORY  OF  BANKING 


IN  ALL  THE 


Leading  Nations. 


^ 


A  HISTORY  OF  BANKING 


IN    ALL   THE 

LEADING    NATIONS; 

COMPRISING 

THE  UNITED  STATES;    GREAT   BRITAIN;    GERMANY;    AUSTRO- 
HUNGARY;  FRANCE;  ITALY;  BELGIUM;  SPAIN;  SWITZER- 
LAND; PORTUGAL;  ROUMANIA;  RUSSIA;  HOLLAND; 
THE   SCANDINAVIAN    NATIONS;    CANADA; 
CHINA;  JAPAN; 

COMPILED    BY    THIRTEEN    /lUTHORS. 


EDITED  BY  THE 
MD'TOR  OP  THE  JOURNAL   OF  COMMERCE  Al  D   COMMERCIAL  BULLETIN. 


IN    FOUR     yOLUMES. 


VOLUME    I. 


PUBLISHED   BY 

THE  JOURNAL  OF  COMMERCE  AND  COMMERCIAL  BULLETIN, 

■  9  Beaver  Street,  New  York. 

1896. 


HGI55/.H6 
V.I 


coririioHT,  1896: 


wx 


THE  lOUINia  or  COMMIUCI   AND  COMMIiaAl.  lUlllTIK, 


A  History  of  Banking 


IN 


THE    UNITED   STATES; 


BY 


WILLIAM    GRAHAM    SUMNER. 

PROFESSOR  OF  POUTICAL  AND  SOCIAL  SCIENCE,  IN  YALE  UNiyBRSITY, 


NEW    YORK, 
iSyC. 


8778 


R9^ 


mmmm 


EDITOR'S    PREFACE. 


ALTHOUGH  a  book  should  always  be  able  to  tell  its  own  story,  yet 
when  its  authorship  is  so  widely  composite  as  in  the  case  of  the 
present  volumes,  a  few  prefatory  words  may  be  neither  inappropriate  nor 
unnecessary. 

This  work  finds  its  occasion  in  an  important  juncture  of  circumstances. 
Next  to  the  notable  political  unrest  of  the  world  is  its  financial  unrest. 
Among  all  the  advanced  civilizations,  there  is  a  distinct  consciousness  of 
inadequacy  in  the  methods  and  mechanisms  of  banking  systems  to  satisfy 
the  rapidly  expanding  commerce  and  finance  of  modern  times.  Equally, 
the  world's  currency  systems  are  felt  to  be  so  cumbrous  and  inflexible  as  to 
fetter  rather  than  facilitate  the  ever-enlarging  volume  of  both  internal  and 
external  exchanges.  The  laws  intended  to  regulate  the  instruments  of 
exchange  mar  their  efficiency,  make  them  needlessly  costly,  restrict  their 
circulation  and  invest  them  with  a  quality  of  positive  danger.  In  the 
United  States,  this  evil  of  over-regulation  has  become  so  obstructive  to 
banking  and  monetary  operations  as  to  have  developed  one  of  the  most 
serious  financial  situations  in  the  history  of  the  country. 

These  aspects  of  the  times  seem  to  appeal  to  our  statesmen,  our  econo- 
mists, our  bankers  and  our  intelligent  citizens  at  large  for  a  candid  and 
thorough  examination  into  the  instrumentalities  through  which  the  ex- 
changes of  our  seventy  millions  of  active  population  are  transacted.  The 
Publishers  of  this  Work  conceive  that  one  of  the  best  aids  to  such  an  inves- 
tigation must  lie  in  an  unbiassed  study  of  the  banking  and  monetary  sys- 
tems of  all  nations,  as  developed  by  a  continually  progressive  experience. 
These  volumes  are  designed  to  encourage  and  assist  such  education.  The 
economic  learning  or  the  eminent  practical  experience  of  the  Authors  should 
sufficiently  guarantee  the  accuracy  of  their  Histories.  The  method  of  treat- 
ment adopted  has  been  to  pursue  an  impartial  narration  of  events,  exhibit- 


EDITORS  PREFACE. 


ing  the  various  banking  and  currency  systems  in  their  action  and  results, 
rather  than  to  discuss  them  critically. 

To  strict  bibliographic  critics,  some  explanation  may  be  permitted. 
With  such  a  diversity  of  Authors  of  various  nationalities,  it  has  been  found 
impossible  to  maintain  uniformity  in  the  arrangement  of  matter,  the  use  of 
captions  and  the  form  of  typographical  make-up,  without  in  some  measure 
interfering  with  the  writer's  identity  of  method ;  which,  to  authorities  who 
have  earned  a  title  to  their  individuality,  would  be  an  intrusion.  To  this 
cause  also  must  be  attributed  the  omission  of  an  Index  from  some  of  the 
Treatises. 

THE  EDITOR. 


February  t,  1896. 


I  i 


AUTHOR'S    PREFACE. 


THE  essential  function  of  a  bank  is  to  facilitate  transfers  o(  capital.  In 
the  United  States,  however,  the  function  of  note  issue  has  always 
occupied  the  chief  place  iti  public  thought  about  banks.  It  is  as  note  issuers 
that  they  have  had  their  greatest  share  in  the  national  life,  and  it  is  in  this 
capacity  that  the  historian  has  chiefly  to  deal  with  them. 

The  material  for  this  history  is  very  intractable.  It  bristles  with  details 
which  defy  attempts  at  condensation.  There  is  a  general  history  of  banks 
which  centers  around  the  federal  government;  but  we  begin  with  thirteen 
commonwealths,  in  each  of  which  banks,  beside  their  shares  in  the  general 
history,  had  a  history  of  their  own,  and  the  number  of  commonwealths 
increases  to  thirty,  before  the  present  National  Bank  system  was  established. 

Should  the  narrative  be  constructed  on  the  chronology,  or  on  the  sub- 
divisions of  the  subject,  or  on  the  State  division  r*  Each  of  these  methods 
has  its  claims.  In  order  to  try  to  do  justice  to  each  of  them,  I  have  adopted 
the  following  construction  of  the  work.  Taken  as  a  whole  the  treatment  is 
chronological ;  it  is  not  evolutional ;  for  scarcely  any  genetic  development 
can  be  traced.  Six  periods  are  marked  off,  which  are  based  on  the  grander 
vicissitudes  of  the  history.  The  chapters  and  sub-chapters  are  constructed 
on  the  analysis  of  the  subject  matter  within  the  period.  They  allow  the 
reader  to  pursue  any  one  subject  consecutively,  if  he  so  desires.  The  Table 
of  Contents  presents  this  chronological  and  analytical  construction.  From 
point  to  point  surveys  of  the  States  are  taken,  which  present  the  history  of 
banks  in  the  several  States.  The  references  in  the  Index,  under  the  names 
of  the  States,  will  enable  the  reader  to  connect  these  detached  sections  into 
a  history  of  the  banks  in  any  State. 

The  authorities  or  which  I  have  relied  are  the  Session  Laws,  Court 
Reports,  State  and  Congressional  documents.  I  have  examined  the  Session 
Laws  of  all  the  States  south  and  west  of  Maryland,  from  the  beginning  of 


Xll 


AUTHOR'S  PREFACE. 


the  Colony  or  Territory  until  the  adoption  of  the  National  Bank  system. 
For  the  States  north  and  east  of  Maryland,  I  have  relied  more  on  secondary 
authorities,  consulting  the  Session  Laws  for  special  laws  or  periods.  In  this 
connection  I  have  to  express  my  obligations  to  the  Bar  Association  of  the 
city  of  New  York  for  the  unlimited  facility  of  using  their  splendid  collection 
of  the  Session  Laws  which  they  allowed  me.  All  secondary  authorities  are 
cited  at  the  foot  of  the  page,  and  need  not  be  mentioned  further  here.  As 
to  documents  of  the  States,  1  have  been  obliged  to  be  content  with  such  as 
have  drifted  by  chance  into  the  libraries  within  my  reach.  To  do  more  than 
this  it  would  be  necessary  to  travel  from  State  to  State  and  spend  much  time 
in  each.  Even  if  one  could  do  this,  how  many  States  possess  collections  of 
their  documents,  from  the  beginning  of  this  century,  in  an  accessible  form  ? 

With  few  documents  at  hand,  it  is  impossible  to  answer  the  doubts  and 
queries  which  arise,  especially  in  condensing,  and  also  it  is  impossible  to 
make  the  combinations  by  which,  in  a  work  of  this  kind,  the  investigator 
verifies  and  ratifies  the  statements  of  fact.  The  section  in  which  this  lack 
has  been  felt  the  most  is  Chapter  i6.  Section  i,  on  the  period  1845-60.  The 
place  in  reference  to  which  the  most  uncertainties  remained  uncleared  was 
New  Orleans.  The  history  of  the  banks  of  that  place  will  yet  furnish  an 
interesting  and  important  subject  of  special  study  for  some  investigator  who 
has  the  local  information  within  his  reach. 

For  the  reasons  now  stated,  I  have  often  been  compelled  to  advance  with 
a  great  feeling  of  uncertainty,  and  I  cannot  hope  that  I  have  avoided 
mistakes.  I  shall  eagerly  welcome  corrections,  or  references  to  documents 
and  authorities  which  I  have  neglected,  if  gentlemen  who  have  local  oppor- 
tunities of  information  will  send  them  to  me. 

W.  G.  SUMNER. 


Yale  University,  February  1.   1896. 


CONTENTS. 


PERIOD  I:  1630  to  1780.  ''*°^ 

The  Colonists  Experiment  with  Joint  Stock  Banks  of  Issue  on  Land  Security,  and  with 
Provincial  Mortgage  Loan  Offices  Issuing  Currency 

CHAPTER  I :  Banks  in  the  Colonies, 

I 

PERIOD  II:  1780  to  1812. 

Banks  are  Incorporated  in  the  States;  also  a  Bank  of  the  United  States  on  the  type  of  the 
Bank  of  England.  The  Colonial  Idea  is  continued  in  Banks  of  the  States,  being  Institutions 
based  either  on  the  "  Faith  and  Credit  "  of  the  State  alone,  or  on  a  Combination  of  Public 
Funds  with  Private  Subscriptions 

13 

CHAPTER  2:  The  Eariiest  Banks  of  Discount,  Deposit,  and  Convertible  Circulation. ...      ,2 

CHAPTER  3:  The  First  Bank  of  the  United  States  and  its  Times 

CHAPTER  4:  The  Eariiest  Banks  in  the  Mississippi  Valley g 

PERIOD  III:  1812  to  1829-32. 

Local  Banks  are  Multiplied  to  Replace  the  Bank  of  the  United  States.  Their  Issues  are 
Stimulated  by  their  Fiscal  Functions,  soon  Intensified  by  War  Financiering.  A  Commercial 
Crisis  is  Produced  with  a  Prolonged  Liquidation,  attended  by  Various  Experiments  in  Bank 
Issues  and  Stay  Laws  for  Relief.  A  Banking  System  is  created  consisting  of  Local  Banks  co- 
ordinated around  a  Bankof  the  United^States,  as  a  Regulator  of  the  Currency  and  Fiscal  Agent 

of  the  Government 

63 

CHAPTER  5:  Inflation  on  the  Atlantic  Coast 

63 

CHAPTER  6:  Inflation  in  the  Mississippi  Valley 

CHAPTER  7:  The  Crisis  on  the  Atlantic  Coast... 

95 

CHAPTER  8:  The  Crisis  in  the  Mississippi  Valley 


7 


XIV 


f 


CONTENTS. 

PAGE 

CHAPTER  9:  Liquidation  on  the  Atlantic  Coast 113 

CHAPTER  10:  Liquidation  in  the  Mississippi  Valley.     Relief  Measures 119 

CHAPTER  1 1 :  The  National  Bank  and  the  Local  Banks  co-ordinated  into  a  New  System.   167 

§  I. — Local  Banks  on  the  Atlantic  Coast  from  the  Liquidation  of  1819-33  until 

the  Bank  Expansion  Produced  by  the  Bank  War 167 

g  a. — The  Bank  of  the  United  States  from  Biddle's  Accession  until  the  Bank  War. . .  183 


PERIOD  IV:  1839  to  1845. 

The  War  of  the  Jackson  Administration  on  the  Bank  of  the  United  States  breaks  up  the 
Existing  System  of  Banks  and  brings  in  Local  Banks  again  as  Currency-Providers  and  Fiscal 
Agents.  Another  Bank  Inflation,  Crisis  and  Liquidation  Ensue.  The  Bank  of  the  State  Insti- 
tution undergoes  great  extension  and  variation 191 

CHAPTER  13:  The  Bank  War 191 

CHAPTER  I  j:  Measures  and  Events  Antecedent  to  the  Crisis  of  1837 335 

I  I . — The  United  States  Bank  of  Pennsylvania 235 

§  3. — The  Multiplication  of  Local  Banks 331 

§  3.— The  Inflation  of  1835  and  1836 358 

CHAPTER  14:  The  Financial  Revulsion:  1837  to  1843-5 366 

§  I. — 1837.  The  Suspension  of  Specie  Payments.  The  United  States  Bank  of 
Pennsylvania  in  the  Crisis.  Its  Cotton  Operations.  The  Federal  Treasury 
in  the  Crisis 366 

§  3. — The  Resumption  of  1838.    The  New  York  Plan  versus  the  Philadelphia  Plan  386 

§  ^. — 1 838  and  1 839.  Treasury  Notes  and  Bank  Notes.  Continuation  of  the  Cotton 
Operations.  Second  Failure  of  the  United  States  Bank  of  Pennsylvania. 
Second  General  Bank  Suspension  South  and  West  of  New  York 394 

§  4.— The  Banks  in  the  States;  1837  to  1840 510 

§  J. — 1840  and  1841.  The  Third  Failure  and  Final  Bankruptcy  of  the  United  States 
Bank.  The  Bank  Failures  of  1841.  The  Extra  Session  of  Congress 
of  1841.  The  Last  Attempts  to  Charter  a  National  Bank.  The  Penn- 
sylvania  Relief  System 335 

CHAPTER  15:  The  Liquidation;  1843  to  1845 358 


CONTENTS.  XV 

PAGB 

PERIOD  V:  1843-5  to  1863. 

Under  the  Independent  Treasury  System  the  Regulation  of  Banking  and  Currency  is  left 
entirely  to  the  States.  The  Federal  Government  handles  only  coin.  Banks  organized  under 
General  J6int  Stock  Laws  gradually,  and  to  a  great  extent,  supersede  Chartered  Banks.  In 
the  Ohio  Valley  and  the  Northwest,  Banks  of  the  new  kind  run  to  great  extravagance  and 
abuse.  By  the  Development  of  New  Institutions  of  Finance,  Commerce,  Transportation  and 
General  Industry,  Banks  lose  comparative  importance 414 

CHAPTER  16:  The  Local  Bank  System.  The  Gold  Discoveries  and  Consequent  Expan- 
sion. The  Commercial  Crisis  of  1854  and  1857.  The  Aid  Given  by  the  Banks  to  the 
Federal  Government  at  the  Beginning  of  the  Civil  War , 414 

§  I.— The  Local  Banks,  by  States;  184$  to  i860 414 

g  3.— The  Banks  at  the  Outbreak  of  the  Civil  War:  i860  to  1863 457 

PERIOD  VI:  From  1863. 
CHAPTER  17:  The  National  Bank  System 463 


BANKS  IN  THE  UNITED  STATES. 


PERIOD  I.— 1630  TO  1780. 

The  Colonists  Experiment  with  Joint  Stock  Banks  of  Issue  on  Land  Security, 
and  with  Provincial  Mortgage  Loan  Offices  Issuing  Currency. 


CHAPTER  I. 

Banks  in  the  Colonies. 

HE  term  "bank"  was  used  in  the  American  colonies  from  the 
very  beginning  of  the  settlement,  in  the  sense  of  a  pile  or  heap. 
In  a  report  made  to  the  Massachusetts  General  Court,  in  1652, 
reference  is  made  to  the  fact  that  some  people  have  been  dis- 
cussing a  project  for  raising  a  bank,  or  engaging  in  general 
trade,  and  have  been  pondering  on  the  badness  of  money  and  its  fluctua- 
tions, and  other  things  relating  to  the  regulation  of  trade.  The  hope  is 
expressed  that  these  ponderings  will  bear  fruit  and  that  things  will  be 
"reduced  to  a  more  comfortable  state  than  we  now  find."  In  the  draft 
of  an  address  to  Charles  11,  in  1684,  mention  is  made  of  the  fact  that  before 
the  establishment  of  the  mint,  in  1652,  "for  some  years  paper  bills  passed 
for  payment  of  debts."*  Correspondence  between  Governor  Winthrop  of 
Connecticut  and  Hartlib  is  cited,  about  1660,  in  which  a  "bank  of  lands  and 
commodities "  is  under  discussion.  It  is  referred  to  as  "a  way  of  trade 
and  bank  without  money,"  and  Winthrop  was  confident  that  this  bank 
would  "answer  all  those  ends  that  are  attained  in  other  parts  of  the  world 
by  banks  of  ready  money." 

This  endeavor,  which  we  here  meet  with  in  the  very  earliest  days  of  the 
settlement,  to  invent  some  kind  of  a  bank  on  land,  which  could  be  made  to 
work  like  the  banks  founded  on  money,  is  most  interesting  and  important 

*  The  statements  in  this  chapter  about  colonial  banks  are  taken,  when  no  other  authority  is  mentioned,  from  Tnimbull ; 
Proc.  Amer.  Antiq.  Soc.  1884 ;  Paine,  ibid.,  1866 ;  Frit,  Mau.  Currency ;  and  Hutchinson,  Hist,  of  Mass.  Bay. 
I 


I 


I 


If 


A  HISTORY  OF  BANKING. 


for  the  study  of  our  subject,  because  we  shall  find  that  from  that  day  to  this 
the  same  train  of  thought,  speculation,  and  effort  has  been  repeated  clear 
across  this  continent,  whenever  the  same  economic  circumstances  have 
existed.  Circulating  notes,  which  are  put  in  the  place  of  money,  are  more 
useful  and  convenient  for  many  purposes  thnn  specie,  provided  their  value 
can  be  assured.  If  they  take  the  place  of  money,  they  become  cash.  They 
deteriorate,  however,  into  negotiable  instruments  and  not  cash  so  soon  as 
the  slightest  shade  of  difference  arises  between  their  value  and  that  of  specie. 
Notes  issued  on  the  security  of  anything  but  specie,  or  on  specie,  if  not 
strictly  held  to  the  standard,  are  negotiable  instruments.  No  matter  how 
great  and  good  the  security  behind  them  may  be,  it  is  always  possible  that 
for  some  reason,  a  divergence  may  arise  between  the  paper  instrument  and 
cash.  The  persons  who  possess  land  in  a  new  country  are  under  an  absolute 
necessity  for  some  capital.  The  amount  of  capital  that  can  be  employed  on 
the  land  is  small,  because  no  high  culture  would  pay;  but  the  amount  of  cap- 
ital that  is  necessary  for  superficial  culture  is  absolutely  indispensable.  On 
the  advancing  margin  of  new  settlement,  breaking  the  way  into  the  wilder- 
ness all  the  way  across  the  continent,  the  circumstances  of  the  first  settlers 
on  the  coast  have  been  repeated.  The  want  is  capital.  They  always  think 
that  the  want  is  money.  Any  community  of  people  who  had  been  educated 
on  a  money  economy,  and  who  meant  to  remain  on  it,  would  have  money, 
because  that  would  be  one  of  its  first  and  most  fundamental  needs.  It 
would  be  forced  to  go  without  other  things  in  order  to  get  money,  because 
the  lack  of  money  would  arrest  the  operation  of  the  industrial  and  com- 
mercial organization  on  which  its  members  wo  Id  depend  for  the  supply  of 
all  needs.  But  new  settlers,  destitute  of  everything,  begrudge  the  invest- 
ment of  capital  in  money,  which  is  only  a  tool  of  exchange.  They  want  to 
put  all  the  capital  they  can  get  into  the  circulating  capital  which  is  turned 
over  in  every  period  of  production  and  brings  the  full  business  rate  of  profit. 
If,  therefore,  they  get  any  money,  they  part  with  it,  as  far  as  they  possibly 
can,  in  the  purchase  of  the  real  capital  which  they  need.  This  is  what  the 
colonists  of  North  America  did.  They  got  plenty  of  silver  in  commerce. 
They  spent  it  all  for  products  of  civilized  industry  from  England.  They 
were  able  to  do  this  because  they  gave  up  the  money  system  of  traffic  and 
fell  back  upon  barter.  Then  they  could  do  without  money,  but  when  they 
had  made  arrangements  to  do  without  money,  they  had  to  do  without  it.* 
It  is  not  possible  to  do  without  it  and  keep  it  too.  Their  own  interpretation' 
of  the  facts,  in  consonance  with  such  economic  theories  as  then  prevailed, 
was  that  "the  balance  of  trade  drew  away  all  their  specie."  Then  they 
thought  it  necessary  to  do  something  to  "  provide  a  medium,"  and  we  find 
them  planning  a  bank  for  the  purpose.  Land  was  the  one  thing  which  they 
possessed  in  abundance  and  they  wanted  to  make  this  a  security  for  the 

*  "  Silver  began  to  be  generally  shipped  off  as  paper  became  the  currency,  which  gave  the  merchant  the  liberty  of  ship- 
ping off  his  silver,  as  merchandise,  which  otherways  he  must  have  kept  as  cash,  seeing  no  business  can  be  carried  on  to  ad- 
vantage without  cash."    (The  Overstone  Tract,  1740.) 


BANKS  IN  THE  COLONIES. 


notes  which  were  to  do  the  work  of  money.  There  was  a  very  active  spec- 
ulation on  banks  going  on  in  England,  and  many  of  the  speculators  were 
working  at  schemes  for  banks  founded  on  land  values,  which  were  a  very 
different  thing  in  an  old  country  from  what  they  were  in  a  new.  ft 
was  very  natural  that  these  ideas  should  be  taken  up  eagerly  by  the 
colonists. 

It  must  be  added,  however,  that  there  were  circumstances  of  difficulty 
connected  with  the  supply  of  money.  In  any  such  primitive  agricultural 
community  the  circulation  of  money  is  extremely  sluggish,  because  the 
organization  is  low  and  the  households  largely  supply  their  wants  from  their 
own  direct  efforts.  It  is  only  at  particular  seasons  of  the  year  that  money  is 
more  needed  and  that  its  circulation  is  more  active.  Money  should  therefore 
be  drawn  from  commercial  centers  at  those  times  and  then  returned  to  them. 
Otherwise  the  expense  of  maintaining  money  enough  all  the  time  to  suffice 
at  the  times  of  need  is  really  great.  The  distance  of  the  colonies  from 
England,  the  difficulty  of  communication,  and  the  obstructive  legislation 
which  was  in  fashion,  made  it  impossible  that  money  should  go  to  and  fro 
with  facility  as  wanted.  Gallatin,  who  was  a  competent  observer,  and  who 
lived  in  the  midst  of  these  primitive  facts  in  western  Pennsylvania,  said  of 
the  people  there:  "The  principle  almost  universally  true  that  each  country 
will  be  naturally  supplied  with  the  precious  metals  according  to  its  wants 
did  not  apply  to  their  situation." 

The  American  colonists  gave  up  the  struggle  to  maintain  themselves  on 
a  money  system.  They  fell  back  upon  barter  and  established  a  system  of 
barter  currency  as  their  money  of  account.  This  fact  is  of  the  first  im- 
portance for  understanding  the  financial  and  monetary  phenomena  of  the 
period. 

In  1667  a  pamphlet  was  published  in  Massachusetts  in  which  the  ideas 
which  have  been  described  were  very  fully  set  forth.  The  writer  had  per- 
ceived that,  if  exchanges  could  only  be  brought  into  coincidence,  there  was 
need  of  little  or  no  money.  He  inferred  that  money  itself  need  have  no 
value.  He  wanted  to  provide  some  ultimate  security  in  land,  and  in  a 
pledge  of  merchandise,  and  he  aimed  to  carry  out  the  transactions  by  book 
debts,  or  bills  of  exchange,  or  change  bills,  according  to  the  nature  and  size 
of  the  transactions.  He  also  lays  great  stress  on  the  advantages  which 
would  come  from  a  more  abundant  supply  of  money.  The  project  is  like 
those  which  were  put  forth  in  England  a  little  later  by  Chamberlain  and 
Briscoe  for  land  banks.  An  institution  on  this  plan  appears  to  have  been 
actually  started  in  Massachusetts,  in  1671,  "and  was  carried  on  in  private 
for  many  months,"  although  without  issuing  notes.  Another  similar  bank 
was  set  up  in  1681  which  did  issue  notes.     Nothing  is  known  of  its  history. 

John  Blackwell  and  others  made  a  proposition  to  the  authorities  of  the 
colony,  in  1686,  to  set  up  a  bank  to  issue  notes  and  make  loans  on  the 
security  of  land  and  imperishable  merchandise.  The  scheme  was  approved 
and  authorized.     "All  that  is  known  of  the  history  of  this  Association,  the 


y.-P 


If 


A  HISTORY  OF  BANKING. 


first  chartered  bank  in  Massachusetts,  is  found  in  a  brief  reference  to  it  made 
by  the  anonyn)ous  author  of  a  pamphlet  printed  in  1714."  "Our  fathers, 
about  twenty-eight  years  ago,  entered  into  a  partnership  to  circulate  their 
notes  founded  on  land  security,  stamped  on  paper,  as  our  Province  bills, 
which  gave  no  offence  to  the  government  then,  etc."* 

The  first  bills  of  credit,  as  they  were  called  by  a  seventeenth  century 
expression,  which  is  said  to  have  been  applied  to  the  goldsmiths'  notes  in 
London,  were  issued  in  1690  by  the  government  of  Massachusetts  Bay,  to 
pay  the  expenses  of  an  unsuccessful  expedition  to  Canada.  Of  these  bills  of 
credit,  Cotton  Mather  said,  in  a  pamphlet,  that  they  were  disposed  of  by  the 
first  receivers  at  14  or  15  shillings  in  the  pound.  He  urged  the  impossibility 
of  collecting  them  in  corn  "at  overvalue,"  whereby  he  bears  testimony  to 
the  error  and  mischief  of  the  barter  currency.  He  has  heard  that  some  indi- 
viduals in  New  York  or  Connecticut  have  circulated  notes  on  their  credit  and 
is  indignant  that  these  of  Massachusetts,  based  on  all  the  wealth  of  the 
Province,  should  not  be  sustained.  "  Silver  in  New  England  is  like  the  water 
of  a  swift  running  river;  always  coming  and  as  fast  going  away,"  but  this 
paper  currency  "is  an  abiding  cash;  for  no  man  will  carry  it  to  another 
country,  where  it  will  not  pass,  but  rather  use  it  here,  where  it  will,  or,  at 
least  ought;"  etc.f 

A  committee  ot  the  General  Court,  in  1701,  proposed  a  bank,  but  it 
was  negatived  by  the  Council.  Another  movement  for  the  establishment  of 
a  private  bank  was  started,  in  1714,  by  several  gentlemen  of  Boston. 
Hutchinson  says  that  they  were  "persons  in  difficult  or  involved  circum- 
stances in  trade,  or  such  as  were  possessed  of  real  estates,  but  had  little  or 
no  ready  money  at  command,  or  men  of  no  substance  at  all." 
w  The  scheme  was  that  ;^300,ooo  should  be  subscribed  and  the  same 
amount  of  notes  issued.  The  subscribers  were  to  mortgage  their  estates  as 
an  ultimate  security  against  mismanagement,  etc.  Each  subscriber  was  to 
take  out  between  one  quarter  and  one  half  of  his  stock  in  notes  and  keep 
them  out  at  least  two  years,  paying  interest  for  them.  All  partners  agreed 
to  take  the  notes  at  a  rate  equal  to  the  bills  of  credit  of  the  colony.  The 
tenor  of  the  notes  was  that  all  the  members  of  the  company  would  take 
them  in  all  payments  "in  lieu  of"  so  many  shillings,  and  that  they  would 
be  so  received  for  any  pawn  or  mortgage  in  the  bank. 

One  important  allegation  in  favor  of  the  bank,  revealing  a  line  of  thought 
which  we  shall  meet  with  often  hereafter,  was  that  it  "would  sever  the 
connection  between  money  and  might."  We  also  find  the  Land  Bank 
seeking  favor  by  propositions  of  a  class  often  met  with  in  the  nineteenth 
century.  They  proposed  to  give  a  sum  annually  to  the  use  of  a  hospital  or 
charity  school  for  the  poor  children  of  Boston,  provided  the  inhabitants,  at 
or  before  their  general  meeting  in  March,  1715,  would  order  the  Treasurer 
to  accept  their  bank  bills  in  payment  of  town  taxes  and  assessments. 


•  Tnimbull,  175. 


t  Trumbull,  2S4. 


'J/1NKS  IN  THE  COLONIES. 


As  this  project  took  more  definite  shape,  it  aroused  great  opposition,  and 
in  order  to  defeat  it,  a  project  was  set  in  opposition  to  it  for  a  further  issue 
of  colonial  bills  of  credit — not  for  the  expenses  of  government,  but  on  a  new 
scheme.  The  colonial  government  was  to  prepare  and  lend  out  on  mort- 
gage, in  bills  of  credit,  ;^' 30,000,  repayable  in  five  annual  installments,  with 
five  per  cent,  interest.  A  public  meeting  at  Boston  pronounced  in  favor  of 
the  public  bank.  All  the  popular  arguments  were  on  its  side.  The  Gover- 
nor and  Council  forbade  any  private  company  to  issue  bills  of  credit  for  cir- 
culation without  the  authority  of  the  General  Court.  Nevertheless  the  bank 
proceeded  to  make  issues.  In  1716  another  "public  bank"  was  made. 
;^ioo,ooo  "was  committed  to  the  care  of  the  county  trustees  ;  was  propor- 
tioned to  each  county  according  to  its  tax  ;  secured  by  mortgage  estates  of 
double  the  value  of  the  sum  borrowed  ;  each  loan  not  exceeding  ;^50o  nor 
being  under  jC2^,  for  ten  years,  at  five  percent.,  paid  annually;  the  profits  to 
help  pay  for  expenses  of  government,  and  the  bills  to  be  returned  at  the  end 
of  this  period  and  burnt.  Frequent  litigations  subsequently  arose  in  the 
settlement  of  the  mortgages  for  this  money." 

This  is  a  specimen  of  the  second  kind  of  bank  in  the  colonies,  one  which 
was  adopted  by  all  but  one  or  two  of  the  colonies  and  repeated  over  and 
over  again.  The  sense  of  "bank"  would  be  best  expressed  by  batch,  be- 
cause it  was  applied  to  the  mass  of  bills  provided  for  and  loaned  out  at  one 
time,  under  one  act  of  legislation.  It  would  go  beyond  the  limits  of  our 
subject  to  pursue  this  device  as  an  experiment  in  currency.  It  may  suffice 
to  say  that  the  colonists,  in  their  issue  of  bills  of  credit,  had  hit  upon  a  fact 
in  monetary  circulation  which  they  did  not  understand  and  which  is  not, 
perhaps,  fully  understood  yet.  If  they  had  been  contented  to  use  their  bills 
of  credit  within  very  strict  limits,  to  be  ascertained  by  experiment,  they 
might  have  carried  on  the  system  indefinitely,  with  complete  success,  and 
have  conquered  all  their  troubles  from  a  "lack  of  a  medium."  The  notion 
of  a  cheap  money  would,  of  course,  have  been  a  pure  fallacy.  No  money 
can  be  cheap  except  to  the  issuer.  If  he  gets  it  at  the  cost  of  manufacturing 
bits  of  paper,  and  can  exchange  these  for  commodities,  in  as  large  amounts  as 
he  could  get  for  the  coins  whose  names  and  denominations  the  paper  bears, 
the  currency  would  be  cheap  to  him ;  but  to  those  who  gave  the  commodi- 
ties for  it,  it  would  be  no  cheaper  than  the  coins  would  have  been.  The 
paper  currency  in  the  colonies,  however,  might  have  overcome  the  difficult- 
ies which  were  due  to  lack  of  communication  and  transportation,  and  to  ob- 
structive legislation,  and  might  have  lifted  the  community  out  of  barter. 
What  actually  happened  was  that  the  colonists  employed  this  device  with- 
out limitation  or  judgment.  They  pushed  the  bills  of  credit  at  once  into 
their  greatest  abuse  ;  which  is,  that  any  paper  issued  at  will,  unlimited 
by  the  hard  facts  of  economic  supply,  can  be  multiplied  in  amount 
indefinitely.  Then,  instead  of  facilitating  intercourse,  it  becomes  the 
worst  barrier  to  intercourse.  The  loan  offices,  also,  under  pretense  of 
providing  the  farmers  with   the   capital   which   they  needed,  only  set 


I 


A  HISTORY  OF  BANKING. 


them  to  juggling  with  the  frauds  of  fluctuating  prices  and  dishonest  con- 
tracts. 

The  colonists  were  not  worse  than  their  time.  The  mysterious  and 
powerful  functions  of  credit  were  developed  in  northern  Europe,  half  by  ac- 
cident, in  the  latter  half  of  the  seventeenth  century.  The  Land  Bank 
scheme,  Mississippi  scheme,  South  Sea  scheme,  etc.,  were  aberrations  due 
to  lack  of  comprehension  of  the  nature  and  hmits  of  the  power  which  had 
been  evoked.  It  was  a  marvelous  thing  to  discover  that  a  corporation,  or  a 
civil  body,  could  emit  notes  and  so  borrow,  yet  win  interest  instead  of  pay- 
ing interest  on  what  it  borrowed.  This  is  what  the  colonics  attempted  to 
do.  They  were  "lending "  to  their  citizens  the  capital  which  was  so  much 
needed,  and  were  at  the  same  time  winning  an  interest  which  paid  the 
expenses  of  the  State,  and  all  at  no  cost  but  that  of  a  little  engraving  and 
printing.  The  notion  of  credit  which  prevailed  was  that  it  was  a  way  of 
making  formulas  of  words  do  the  work  of  capital,  if  only  the  formulas  were 
imposing  enough,  or  were  uttered  by  a  body  having  competent  prestige. 

As  the  Land  Bank  did  not  receive  much  encouragement,  in  spite  of  its 
connection  with  education,  an  alliance  with  internal  improvements,  the 
other  great  make-weight  with  which  it  was  always  connected  for  the  next 
hundred  and  fifty  years,  was  brought  into  its  support.  "Fifty  thousand 
pounds  ought  to  be  laid  out  for  making  a  bridge  over  the  Charles  river,  so 
that  workmen  might  be  employed  and  currency  enlarged,  as  well  as  the 
public  accommodated  ;  and  ruin  will  come  unless  more  bills  of  credit  are 
emitted." 

Trumbull  says  that  nearly  thirty  pamphlets  and  tracts  were  printed, 
between  17 14  and  1731,  for  and  against  a  private  bank  or  a  public  bank,  the 
emission  of  bills  of  credit,  and  paper  currency  in  general.  One  of  the  most 
notable  of  these  is  entitled  :  "  A  Word  of  Comfort  to  a  Melancholy  Country  " 
and  is  a  lamentation  over  the  defeat  of  the  Land  Bank.  Trumbull  attributes 
it  to  John  Wise,  who,  he  says,  has  been  called  "the  first  logical  and  clear 
headed  American  democrat."  He  is  chiefly  concerned  that  a  sufficient 
medium  may  be  provided.  The  medium  need  not  have  value.  It  will  do 
its  work  better  if  it  has  not.  Coin  is  too  costly,  and  New  England  cannot 
keep  it.  The  merchants  ship  it  off.  The  bills  have  done  great  things  for 
Massachusetts.  They  have  built  the  college,  etc.  He  preferred  a  private 
bank  under  government  inspection  to  a  public  bank. 

In  the  meantime,  the  English  had  been  going  through  a  mania  for  joint 
stock  companies,  which  were  a  new  device  of  credit,  the  limits  and  condi- 
tions of  whose  utility  had  yet  to  be  learned  by  bitter  experience.  After  the 
crisis  of  this  speculation  in  England,  the  Bubble  Act  was  passed*  which 
recited  that  many  companies  had,  since  June  24,  1718,  presumed  to  act  as 
corporate  bodies  and  to  make  assignable  shares  without  having  legal  author- 
ity so  to  do.    After  June  24,  1720,  all  undertakings  to  the  prejudice  of  trade. 


*  6  George  I,  C.  i8,  {  i8. 


BANKS  IN  THE  COLONIES. 


and  all  subscriptions  or  cases  of  acting  as  corporations,  without  legal 
authority  so  to  do,  were  to  be  illegal  and  void.  Such  organizations  were 
to  be  deemed  public  nuisances,  and  those  who  made  them  would  incur  a 
premunire.  Brokers  were  forbidden  to  deal  in  such  shares.  There  was 
some  doubt  in  law  whether  this  statute  extended  to  the  colonies,  but  there 
was  sufficient  fear  that  it  might  do  so  to  create  alarm  in  the  private  bank, 
which  had  circulated  notes  in  spite  of  the  prohibition  of  the  provincial 
authorities.  The  Governor  was  strictly  enjoined  by  the  authorities  in 
England  not  to  consent  to  any  further  issue  of  bills  of  credit.  On  this 
account,  the  treasury  notes  having  been  cut  off.  In  1733,  "a  number  of 
merchants  and  others  of  Boston,  in  order  to  supply  the  deficiency  of  such  a 
medium  of  trade,  had  recently  engaged  in  a  project  of  issuing  paper  to  the 
value  of  ;^i  10,000.  Rhode  Island  had  also  ordered  a  large  emission  of  their 
bills,  which,  as  usual,  were  expected  to  have  their  chief  circulation  in  Massa- 
chusetts. With  these  facts  laid  before  them,  and  concluding  that  by  such 
causes  their  own  bills  would  proceed  from  bad  to  worse,  the  General  Court 
appointed  a  committee  to  examine  them  and  make  report."  "Notified  of 
such  action,  Governor  Wanton  replies,  that  the  Rhode  Island  Assembly  had 
enacted,  m  July  last,  to  issue  ^^  100,000  loan,  at  five  per  cent,  on  land  security. 
He  adds,  '  I  do  assure  the  General  Assembly  of  the  Province,  we  had  an 
especial  regard  for  the  welfare  of  the  public  in  said  emission,  and  hope ' 
that  they  '  will  take  care  that  trade  may  not  be  injured  by  a  private  emis- 
sion now  coming  out  without  their  sanction,  as  I  am  informed.'  " 

"The  committee  raised  about  the  paper  money  in  circulation  make  their 
report,  which  is  accepted  by  both  Houses.  They  state  that  the  merchants' 
notes  emitted  by  Boston  gentlemen  should  be  backed  with  greater  security  ; 
and  that  his  Excellency  be  desired  to  send  out  a  proclamation,  warning  the 
people  to  be  on  their  guard  against  taking  th-?  late  bills  of  Rhode  Island. 
The  bills  of  the  private  bank,  just  mentioned,  amount  to  ;^no,ooo,  and 
were  redeemable  in  ten  years,  withsilver  at  19s.  an  ounce,  then  the  common 
rate  of  the  Province  paper.  Though  a  great  and  imposing  effort  was  made 
to  keep  the  Rhode  Island  bills  out  of  our  market,  yet  they  soon  flowed  in, 
and  became  current." 

"The  Governor  thinks  it  is  not  expedient  to  issue  a  proclamation  against 
both  of  these  sorts  of  currency,  though  he  is  decidedly  opposed  to  them.  He 
gives  his  opinion  that  the  Merchants'  Bank  ought  not  to  do  business  without 
permission  from  the  Assembly  ;  and  that  such  permission  should  not  be 
allowed  them,  because  falling  within  the  limits  of  his  prohibitory  order  from 
the  Crown,  to  have  only  ;^3o,ooo  in  bills  circulating  at  the  same  period. 
Still  the  merchants'  notes  were  circulated,  and  accounted  better  by  33  per 
cent,  than  Province  bills." 

The  following  year  the  Governor  declares  that  "the  bills  of  the  private 
bank  or  merchants'  notes,  instead  of  preventing  a  further  depreciation  of 
Province  bills  as  it  was  confidently  said,  have  had  a  contrary  effect." 

Connecticut  granted  a  charter  to  a  society  in  New  London,  1733,  for 


8 


A  HISTORY  OF  BANKING. 


II 
II 


f!  : 


I  ) 


«' 


■;      I 


trading.  This  society  issued  bills,  "but  their  currency  being  soon  at  a  stand, 
the  government  were  obliged  in  justice  to  the  possessors,  to  emit  ^^0,000 
on  loan  to  enable  those  concerned  in  the  society  to  pay  ofT  their  society  bills 
in  colony  bills.  Their  charter  was  vacated  and  a  wholesome  law  was 
enacted  that  for  any  single  person  or  society  of  persons  to  emit  and  pass 
bills  for  commerce,  or  in  imitation  of  colony  bills,  penalty  should  be  as  in 
case  of  forgery,  or  of  counterfeiting  colony  bills."  * 

In  173s,  a  private  bank  was  formed  in  New  Hampshire,  to  which  refer- 
ence is  made  In  the  following:  "Whereas  sundry  persons  of  New 
Hampshire  have  adopted  measures  the  past  year  to  issue  promissory  notes 
of  a  most  uncertain  and  sinking  value,  as  they  are  payable  in  New  Hamp- 
shire, Massachusetts,  Connecticut,  and  Rhode  Island  bills,  or  in  silver,  gold 
or  hemp,  at  the  unknown  price  they  may  be  at  in  Portsmouth,  in  New 
Hampshire,  Anno  1747,  whereby  his  Majesty's  good  subjects  will  be  great 
sufferers,  should  they  part  with  their  goods  and  substance  for  them  or  accept 
of  them  in  payment,  etc."  "This  was  a  banking  speculation,  which  prom- 
ised much  advantage  to  its  promoters,  but  very  little  to  the  public.  The 
larger  amount  of  its  paper,  like  all  such  currency  of  that  day  in  New 
England,  reached  Boston — the  great  mart  for  the  northern  colonies  ;  but 
placed  under  the  ban  of  the  law,  its  market  was  spoiled  for  this  Province." 

The  tract  concerning  the  Colonial  Currencies,  which  is  included  in  the 
Overstone  collection,  was  published  about  1740.  The  author  shows  how 
the  depreciated  paper  money  hurt  the  wages  and  salaried  classes,  because 
the  depreciation  with  respect  to  specie  never  measured  the  loss  in  purchas- 
ing power.  "The  shopkeepers  are  become,  as  it  were,  bankers  between 
the  merchants  and  tradesmen  [mechanics],  and  do  impose  upon  both 
egregiously.  Shop  notes  [store-pay],  that  great  and  insufferable  grievance 
of  tradesmen,  were  not  in  use  until  much  paper  money  took  place. "  The 
author  thinks  that  he  can  prove  that  the  specie  value  of  the  whole  currency 
constantly  declined  as  greater  issues  were  made  ;  and  he  shows  how  little 
cliques  of  persons  who  were  possessed  of  political  power  got  the  loans  into 
their  hands,  in  the  first  instance,  and  sold  them  at  a  premium. 

March  19,  1740 :  "  In  continuance  of  the  controversy  between  the  Repre- 
sentatives and  the  Governor,  he  repeats  his  account  of  the  Province  arrear- 
ages. He  says  that  there  are  ^210,000  in  bills  now  circulating,  ^^40,000 
are  on  loan,  and  the  rest,  ^^  170,000,  former  Assemblies  have  promised  shall 
be  collected  into  the  Treasury,  by  a  tax  in  the  several  years  specified,  by 
1742,  and  that  this  will  be  a  heavy  burden,  especially  as  no  provision  is 
made  to  supply  the  place  of  paper  currency.  Such  being  the  pecuniary  con- 
dition and  prospect  of  the  Province,  several  projects  are  advanced  by  com- 
panies to  supply  the  deficiency  of  money.  The  petitions  of  these  associa- 
tions, being  laid  before  the  Legislature,  and  assigned  to  a  Committee  for 
consideration,  are  reported  on.    One  of  them  was  John  Colman  and  395 


I  ^\■ 


=11 


*  Overstone  Tracts :  Colonial  Currencies,  ii. 


BANKS  IN  THE  COLONIES. 


others  for  ^{^i  50,000,  to  be  lent  in  notes  on  land  security,  and  payable  in 
twenty  years  by  various  articles  of  merchandise.  Another  was  Edward 
Hutchinson  and  106  partners,  for  £\20,ooo,  redeemable  in  fifteen  years, 
with  silver  at  30s.  an  ounce,  or  gold  pro  rata.  The  latter  was  upon  a  plan 
similar  to  one  before  mentioned,  and  its  bills  were  denominated  merchants' 
notes.  It  was  promoted  in  order  to  put  down  the  other.  Though  the  gen- 
tlemen appointed  to  consider  them  had  less  objection  to  the  Specie  Bank 
than  to  the  Land,  or  as  frequently  called.  Manufactory  Bank,  they  give  an 
opinion  that  both  are  inexpedient.  In  the  Legislature,  there  is  a  diversity 
of  opinion  as  to  these  companies.  The  Council  express  their  wish  that  the 
Land  Bank  may  be  forthwith  disannulled,  but  that  the  silver  scheme,  so 
called,  be  put  over  to  the  coming  session.  The  Representatives,  looking  on 
the  Land  Bank  as  designed  for  people  of  moderate  property  as  well  as  for 
the  rich,  manifest  their  desire  that  both  suspend  operations  till  the  next 
Assembly,  and  then  be  considered  as  to  their  respective  claims.  This  was 
the  motion  agreed  on,  and  thuj  the  petitioners  earnestly  looked  for  a  hear- 
ing. 

The  Land  Bank  of  1741  was  to  be  for  the  amount  of  j^  150,000  lawful 
money.  Estates  were  to  be  mortgaged  to  the  company.  Three  per  cent, 
per  annum  was  to  be  paid  on  loans  in  enumerated  products  of  the  Colony 
and  the  principal  was  to  be  repaid  in  twenty  years  (five  per  cent,  per  annum), 
in  the  same  way.  Mechanics,  etc.,  might  come  in  for  not  over  ;^ioo  each, 
by  giving  two  sureties  for  double  the  sum.  [Evidently  they  meant  to  print 
and  loan,  in  notes,  at  once  to  the  stockholders  the  full  amount  of  the  stock 
subscribed.  The  mortgages  carried  no  guarantee  to  the  noteholders,  ex- 
cept as  they  could  be  pursued  through  the  company.]  There  were  to  be  no 
dividends  for  five  years,  and  after  that  none  which  should  ever  leave  less 
than  twice  the  principal  paid  in  at  the  time.  [They  intended  to  trade  with 
the  products  which  were  paid  in.] 

The  notes  were  to  read:  "We  promise  for  ourselves  and  partners  to 
receive  this  20  shilling  bill  of  credit  as  so  much  lawful  money,  in  all  pay- 
ments, trade,  and  business,  and  after  the  expiration  of  twenty  years  to  pay 
the  possessor  the  value  thereof  in  manufactures  of  this  Province."  The  pro- 
jectors of  this  notable  scheme  had,  probably,  no  intention  of  fraud,  but  their 
plan  would  have  given  them  possession  of  the  "  manufactures  of  this  prov- 
ince" to  the  amount  of  the  notes  issued  by  them,  without  any  security  or 
interest  by  them,  for  the  term  of  twenty  years.  It  was  because  they  called 
it  a  "bank,"  and  were  "providing  a  medium"  that  their  minds  were 
obscured  to  the  truth  of  the  case. 

At  this  time,  the  notes  ofthe  merchants,  issued  in  1733,  were  at  thirty-three 
and  one-third  per  cent,  above  the  Province  bills,  being  paid  in  gold  and  silver, 
and  the  notes  of  the  Specie  Bank  of  1740  were  equivalent  to  cash,  the  issuers 
being  "eminent  and  wealthy  merchants."  This  seems  to  sound  as  if  the 
notes  were  actually  convertible  and  converted ;  but  it  probably  should  not  be 
understood  that  they  were  so  in  the  sense  of  more  modern  times. 


lO 


A  HISTORY  OF  BANKING. 


i  i 


% 


Gov.  Belcher  took  strong  ground  of  opposition  to  the  Land  Bank  which 
had  begun  operations  without  authorization.  He  published  a  proclamation 
warning  the  people  against  the  notes  as  fraudulent  contrary  to  civil  order, 
and  harmful  to  trade.  He  treated  the  bank  as  rebellious,  since  it  was  unau- 
thorized, and  he  tried  to  compel  all  civil  and  military  officers  to  abandon  it. 
The  Specie  Bank  also  commenced  business.  The  government  was,  in  fact, 
generally  so  lenient  and  indulgent  that  it  was  very  weak  when  it  tried  to 
exert  authority.  One  project  led  to  another  until  there  was  a  bank  mania  in 
a  small  way. 

These  projects  led  to  an  extension  of  the  Bubble  Act  to  the  colonies.* 
The  act  is  entitled,  "For  restraining  and  preventing  several  unwarrant- 
able schemes  and  undertakings  in  His  Majesty's  colonies  and  plantations  in 
America."  All  clauses  of  the  Bubble  Act  "did,  do,  and  shall  extend  to,  and 
are  and  shall  be  in  force  and  carried  into  execution  "  in  America. 

The  act  went  on  to  say  that  the  occasion  for  it  was  the  doubt  whether  the 
actof  1719  could  be  executed  in  America,  because  the  aggrieved  persons 
must,  according  to  that  act,  bring  suit  in  Westminster,  Edinburgh,  or  Dublin. 
This  act  now  provides  that  suits  may  be  heard  in  any  of  the  King's  courts  of 
record  in  America.  Noteholders  were  given  a  right  of  action  against  each 
partner  for  the  amount  and  interest,  although  by  the  tenor  the  note  might 
not  yet  be  due.  Any  person  suffering  harm  might  recover  treble  damages 
and  costs;  and  the  persons  composing  the  company  were  liable  to  a premun- 
ire,  according  to  16  Richard  II.  These  penalties  were  all  to  be  arrested  if  the 
company  should  dissolve  and  go  into  liquidation  before  September  29,  1741. 

According  to  the  fashion  of  the  times,  thi?  enactment  was  met  in  a  recal- 
citrant disposition.  All  the  jargon  about  liberty  and  the  charter  was  repeated. 
The  irritation  produced  in  the  Colonies  by  the  attempts  of  the  mother  country 
to  restrain  paper  issues  contributed  more  than  perhaps  any  other  one  thing 
to  produce  that  estrangement  which  resulted  in  the  Revolution.  Upon  this 
occasion  the  first  impulse  of  those  interested  in  the  Land  Bank  was  to  defy 
the  law,  and  it  appears  that  the  bank  produced  no  little  demoralization  of 
civil  institutions  for  a  year.  As  we  shall  see  below,  the  States  fought  un- 
ceasingly against  unchartered  issuers  of  paper,  from  the  Revolution  to  the 
Civil  War;  and  the  federal  government,  in  its  dealings  with  Territories, 
which  are  a  complete  analogon  to  Colonies,  has  reserved  to  Uself  the  right  to 
disallow  any  legislative  acts  of  the  Territories  and  has  exercised  that  right, 
notably  in  respect  to  banks,  t 

September  22,  1741,  a  committee  of  the  General  Court  was  appointed  to 
meet  at  Milton  "to  examine  the  condition  of  the  Land  Bank.  They  find 
;£'49,250  of  its  notes  are  struck  off  and  endorsed  and  that  the  Treasurer  had 
issued  them  from  his  hands  to  the  amount  of  jC}'j,'y^2,  and  that  the  directors 
employ  .1^4,067  of  them  in  trade.  This  investigation  is  soon  followed  with 
heavy  restrictions  upon  the  funds  of  the  company." 


*  14  George  II,  C.  37. 


t  See  index:  Territories,  banlo  in  the. 


BANKS  IN  THE  COLONIES. 


II 


March  30,  1742  :  "A  Committee  for  the  settlement  of  the  Land  Bank 
publish  a  pressing  call  on  its  stockholders  to  settle  its  demands  upon  them. 
This  call  contains  the  succeeding  items."  "It  is  now  nine  months  since 
the  company's  vote  at  Lynn  that  no  more  bills  should  be  issued  out  of  the 
Treasury  till  the  next  meeting,  and  more  than  six  months  since  the  vote 
passed  at  Milton  to  bring  in  and  consume  to  ashes  all  the  outstanding  bills. 
By  the  delay  of  those  indebted  to  the  institution,  our  company  is  thrown 
into  the  last  extremity  of  confusion  ;  and  without  the  most  speedy  measures 
are  pursued  in  bringing  in  the  bills,  the  consequence  will,  we  fear,  prove 
ruinous  to  some  hundreds  of  the  partners.  The  possessors  of  our  bills  are 
more  and  more  uneasy  every  day  as  that  part  of  their  estates  lies  useless  by 
them,  and  so  incessant  in  their  worries,  that  the  directors  have  in  their  late 
advertisement  implicitly  threatened  to  be  on  the  possessors'  side  against  the 
delaying  partners." 

This  bank  is  heard  of  again  and  again  during  the  following  twenty  years. 
The  surviving  or  solvent  stockholders  and  their  heirs  were  subject  to  repeated 
demands  from  the  noteholders,  which  they  seem  to  have  evaded  to  the  best 
of  their  ability. 

There  is  a  tradition  that  there  was  a  bank  in  Virginia  before  the  estab- 
lishment of  the  Bank  of  North  America.*  A  special  loan  office  was  proposed 
there  in  1765,  to  enable  the  Treasurer  of  the  colony  to  make  good  public 
funds  which  he  had  loaned  to  his  friends,  but  it  failed. f  The  tradition 
may  more  probably  be  based  upon  an  Association  referred  to  in  an  act  of 
1777:  "Whereas  divers  persons  have  presumed  upon  their  own  private 
security  to  issue  bills  of  credit  or  notes  payable  to  the  bearer  in  the  nature  of 
paper  currency,"  a  penalty  is  imposed  upon  those  who  "issue  or  offer  in 
payment "  any  such  notes  without  the  authorization  of  the  Commonwealth, 
often  times  the  amount  of  the  note,  half  to  go  the  informer.| 


*  Gouge :  Journal  of  Banking,  412. 


t  I  Henry's  Henry,  76. 


X  9  Statues  at  Large  4)1. 


!       1    J 


ft'       I! 


11         < 


f 


PERIOD   II.— 1780  TO   1812. 

Banks  are  Incorporated  in  the  States,  also  a  Bank  of  the  United  States  on  the 
type  of  the  "Bank  of  England.  The  Colonial  idea  is  continued  in  Banks 
of  the  States,  being  Institutions  based  either  on  the  "  Faith  and  Credit  " 
of  the  State  alone,  or  on  a  Combination  of  Public  Funds  with  ^Private 
Subscriptions. 

CHAPTER  II. 

The  Earliest  Banks  of  Discount,  Deposit,  and  Convertible  Circulation. 

^^^^^T  can   cause  no  wonder  that  when  the  Revolution  broke  out, 
deep  suspicion  and  prejudice  were  entertained  against  every- 


thing by  the  name  of  bank.  It  was  only  under  the  pressure 
of  great  fiscal  necessity  that  the  unwillingness  to  entertain 
any  project  under  this  name  was  overcome. 
In  a  speech  in  the  Pennsylvania  Assembly,  in  1786,  in  the  debate  about 
the  Bank  of  North  America,*  Robert  Morris  said  that  although  the  proprietary 
government  "had  no  idea  of  a  bank,  the  commercial  men  of  the  Province 
had,  and  I,  as  a  merchant,  laid  the  foundation  of  one,  and  established  a  credit 
in  Europe  for  the  purpose.  From  the  execution  of  this  design,  I  was  pre- 
vented only  by  the  Revolution,  "t  Silas  Dean  submitted  to  Congress  a  plan 
for  a  bank  with  a  capital  of  a  million  and  a-half  pounds  sterling. t  It  was 
suggested  in  the  scheme  of  reconciliation,  which  the  Carlisle  commission 
brought  to  America,  that  a  bank  might  be  formed  to  provide  for  the  retire- 
ment of  the  Continental  paper  currency.  Alexander  Hamilton  was  forming 
bank  projects  as  early  as  1779,  although  the  plan  which  he  then  formed  may 
never  have  left  his  own  hands.  April  30,  1781,  he  sent  a  paper  to  Robert 
Morris,  containing  a  complete  discussion  of  the  financial  situation,  and  the 
measures  required.  He  wanted  a  national  bank,  the  chief  reason  being  "  we 
have  not  a  sufficient  medium."  The  capital  was  to  be  ^3  millions,  lawful 
money,  to  be  paid  in  landed  security,  specie,  plate,  bills  of  exchange,  or 


*  See  pase  i8. 


t  Carey's  Debates,  37. 


Diplomatic  Correspondence  of  the  Revolution,  160. 


EARUFST  CONVERTIBLE-NOTE  BANKS. 


13 


European  securities.  About  one-third  was  to  be  in  specie.  The  United 
States  and  the  States  might  subscribe  not  more  than  half  of  the  capital. 
The  notes  under  ^20  were  to  bear  no  interest,  the  larger  ones,  four  per  cent. 
The  bank  was  to  buy  land,  from  which  Hamilton  thought  that  great  gains 
might  be  made  because  the  tories  would  put  much  land  on  the  market,  and 
sell  it  cheaply.  Depositors  were  to  pay  a  fee  for  the  safe  keeping  of  their 
money.  The  bank  was  to  lend  Congress  jC\.2  millions  at  eight  per 
cent.  Taxes  were  to  be  levied,  the  revenue  from  which  should  be  spec- 
ially appropriated  to  pay  the  interest  on  this  loan.  Other  revenues  were  also 
to  be  raised  sufficient  to  pay  the  bank  two  per  cent,  on  all  the  Continental 
paper  outstanding,  at  40  for  i ;  for  which  provision  the  bank  was  to  guar- 
antee the  paper  and  retire  it  in  thirty  years.  There  were  to  be  three  aux- 
iliary banks  in  Massachusetts,  Pennsylvania,  and  Virginia.*  Moi.is  replied 
that  he  was  afraid  to  "interweave  a  security  with  the  capital  of  this  [his] 
bank,  lest  the  notes  should  seem  to  be  circulated  on  that  credit,  and  the 
bank  would  fall  if  there  should  be  a  run  on  it." 

The  next  step  in  the  development  of  banking  was  independent  of  these 
projects.  On  the  4th  of  June,  1780,  Thomas  Paine  wrote  to  Joseph  Reed, 
urging  that  a  subscription  should  be  raised  to  obtain  recruits  and  supplies 
for  the  army,  which  was  in  a  very  sad  condition.  It  was  expected  every  day 
that  news  would  come  of  the  loss  of  Charleston.  The  public  were  very 
despondent.  Many  members  of  the  Pennsylvania  Assembly  had  brought 
up  petitions  against  taxation.  Paine  was  then  clerk  of  that  body.  He  says 
that  he  subscribed  S500,  and  that  the  next  day  M'Clenahan  and  Morris  sub- 
scribed each  ^200  in  hard  money.  On  the  14th  came  the  news  of  the  loss 
of  Charleston.  On  the  17th  a  meeting  was  held,  at  which  a  syndicate  was 
formed  to  raise  ^300,000  of  Pennsylvania  currency,  but  in  real  money,  the 
subscribers  to  execute  bonds  for  the  subscriptions  and  form  a  bank.f  The 
Board  of  War  informed  Congress  of  this  project,  and  asked  that  a  committee 
be  appointed  to  confer  with  the  subscribers.  The  offer  of  the  persons  who 
formed  the  so-called  bank  was  to  provide,  on  their  own  credit  and  by  their 
own  exertions,  three  million  rations  and  three  hundred  hogsheads  of  rum, 
without  profit  to  themselves  ;  but  they  desired  that  security  should  be 
given  them  for  their  payment.  The  faith  of  the  United  States  was  pledged 
to  them  and  the  Board  of  Treasury  was  directed  to  deliver  to  them  bills  of 
exchange,  drawn  in  their  favor,  on  the  Envoys  in  Europe,  for  a  sum  not 
exceeding  ^150,000  sterling,  as  a  guarantee  of  payment  within  six  months.  J 
Morris  described  this  bank,  some  years  later,  as  "in  fact  nothing  more  than 
a  patriotic  subscription  of  Continental  money,  *  *  *  for  the  purpose  of 
purchasing  provisions  for  a  starving  army."  Hamilton  criticised  it  because 
its  purchases  were  made  with  its  "stock,"  that  is,  its  capital,  and  not  with 
its  notes  ;  so  that  it  was  only  a  subscription  for  a  single  occasion,  and  not 
an  institution  capable  of  continued  action. 


•3  Works,  61,86. 


t  1  Paines  Works,  572, 


i  6  Journal  of  Congress,  66. 


^r" 


'4 


A  HISTORY  OF  RANKING. 


V 


'I 


r; 


CI 


ll; 


nl  ', 


•  k  \ 


From  these  statements  we  may  infer  what  the  plan  of  this  bank  was. 
Continental  or  State  paper  was  brought  into  it  as  a  subscription,  for  which 
the  subscriber  obtained  the  interest-bearing  notes  of  the  bank,  payable  in 
six  months.  The  supplies  were  bought  with  the  currency  which  the  sub- 
scriber had  brought  in.  The  bills  drawn  on  the  Envoys  were  held  as  collat- 
eral security  until  Congress  should  pay  for  the  supplies.  Those  bills  might 
be  negotiated,  but  it  was  the  understanding  that  they  should  not  be  ;  for  it 
was  well  understood  that  they  were  not  drawn  for  value,  legitimately  at  the 
disposal  of  the  drawer,  but  would  impose  an  obligation  on  the  Envoy  on 
whom  they  were  drawn  to  borrow  or  beg  funds  to  meet  them,  so  that  they 
would  be  honored  or  not  according  as  he  succeeded. 

This  institution  was  called  the  Bank  of  Pennsylvania,  and  began  opera- 
tions July  17,  1780,  in  Front  street,  two  doors  above  Walnut.  The  last 
installment  of  the  subscription  was  called  in  November  15th.  The  last  pay- 
ment in  discharge  of  the  debt  of  the  Confederation  to  it  was  made  in  1784. 
Some  attempt  seems  to  have  been  made  to  repeat  its  operations,  for,  Novem- 
ber 29th,  the  Pennsylvania  Assembly  appointed  a  committee  to  confer  with 
the  directors  on  the  practicability  of  an  immediate  supply  of  corn  and  forage 
for  the  army,  on  three  or  six  months'  credit,  to  be  paid  for  in  current  money 
of  the  State,  equal  in  value  to  gold  and  silver.*  In  May,  1781,  Reed,  who 
was  of  the  anti-bank  party,  wrote  to  Washington  that  the  notes  of  the  bank 
would  no  longer  circulate  ;  that  they  soon  lost  credit,  but  that  the  bank 
ruined  the  paper  money  of  the  State.f 

In  May,  1781,  before  he  had  assumed  the  office  of  Financier,  Robert 
Morris  submitted  to  Congress  a  plan  of  a  bank,  which  had  been  prepared  by 
Gouverneur  Morris.J  "Anticipation  of  taxes  and  funds,"  he  wrote,  "is  all 
that  ought  to  be  expected  from  any  system  of  paper  credit.  "§  By  this  he 
meant  that  paper  could  only  be  used  to  anticipate  the  return  from  taxes  by 
which  the  paper  would  be  canceled.  He  proposed  that  Congress  should 
apply  to  the  States  for  power  to  incorporate  the  bank,  and  he  hoped  that  the 
States  would  make  its  notes  receivable  for  taxes. 

May  26,  1 78 1,  Congress  approved  of  the  plan  of  the  Bank  of  North  Amer- 
ica as  follows  :  There  were  to  be  one  hundred  shares  of  $400  each,  with 
liberty  to  increase  the  capital.  The  state  of  the  cash  account  and  circulation 
was  to  be  made  known  to  the  Superintendent  of  Finance  every  evening  ex- 
cept Sunday.  The  States  were  to  make  the  notes,  if  payable  on  demand, 
receivable  for  duties  and  taxes.  The  Superintendent  of  Finance  was  to  have 
access  to  all  books  and  papers.  The  States  were  to  make  laws  to  punish 
embezzlement  in  the  bank  as  felony.  No  director  was  to  be  paid  for  his 
services.  On  the  question  of  incorporating  the  bank,  Massachusetts  voted 
no;  Pennsylvania  was  divided;  Madison  voted  no.  Congress  asked  the 
States  not  to  charter  any  other  bank  during  the  war,  and  to  pass  the  other 
votes  called  for  by  the  plan. 


*  I  Pennsylvania  Journals,  542. 


t  2  Reed's  Reed,  300. 
H  1 1  Dip.  Corr.  Rev.  364. 


X  I  Morris's  Morris,  15. 


EARLIEST  CONVERTIBLE-NOTE  BANKS. 


IS 


Great  efforts  were  necessary  to  recommend  this  plan  to  the  public. 
Morris  was  enthusiastically  zealous  in  favor  of  it.  "I  mean  to  render  this  a 
principal  pillar  of  American  credit,  so  as  to  obtain  the  money  of  individuals 
for  the  benefit  of  the  Union,  and  thereby  bind  those  individuals  more 
strongly  to  the  general  cause  by  the  ties  of  private  interest."  In  this  passage 
he  uttered  one  of  the  favorite  notions  of  the  group  of  public  men  to  which 
he  belonged;  that  it  was  wise  and  necessary,  by  various  devices  and  insti- 
tutions, to  enlist  the  interest  of  capitalists  in  the  political  system  which  had 
been  founded.  "When  once  by  punctual  payment  the  notes  of  the  bank 
obtain  full  credit,  the  sum  in  specie  which  will  be  deposited  will  be  such 
that  the  bank  will  have  the  interest  of  a  stock  two  or  three  times  larger  than 
that  which  it  really  possesses."  A  reason  for  establishing  the  bank  is 
"  that  the  small  sums  advanced  by  the  holders  of  bank  stock  may  be  multi- 
plied in  the  usual  manner  by  means  of  their  credit,  so  as  to  increase  the 
resource  which  government  can  draw  from  it,  and  at  the  same  time,  by 
placing  the  collective  mass  of  private  credit  between  the  lenders  and  bor- 
rowers, supply  at  once  the  want  of  ability  in  the  one  and  of  credit  in  the 
other."  In  these  passages  he  uttered  the  doctrines  of  bank  inflation,  which 
led  Gouge  to  call  him  the  "father  of  paper  money  banking  in  the  United 
States." 

In  making  some  historical  statements  about  this  bank,  in  the  debates  of 
1786,  he  said  that,  up  to  September  ist,  the  subscriptions  had  not  exceeded 
§70,000.  In  that  month,  the  French  :nan-of-war  "  Magicienne  "  arrived  at 
Boston  with  $462,862  in  silver,  which  John  Laurens  had  obtained  from  the 
French  government.  This  was  carted  overland  to  Philadelphia  and  put  in 
the  bank,  but  half  of  it  was  drawn  oui  and  spent  before  the  bank  commenced 
operations. 

In  June,  1781,  he  reported  to  Congress  that  the  c\\\ii  hindrance  to  the 
organization  of  the  new  bank  was  that  the  amount  due  to  the  Bank  of 
Pennsylvania  had  not  been  paid.  He  thought  that  if  it  could  be  paid,  the 
persons  entitled  to  it  could  be  persuaded  to  subscribe  it  into  a  new  bank. 
Congress  was  not  willing  to  sell  the  bills  lodged  as  security  because  of  the 
annoyance  that  would  be  occasioned  to  the  Envoys  who  were  the  drawees. 
Moms  asked  that  the  bills  be  put  at  his  disposal,  and  proposed  to  arrange 
the  transfer,  and  use  the  bills,  so  that  they  would  not  be  presented  for  a  long 
time,  or  not  at  all.     In  this  he  succeeded.* 

A  meeting  was  held,  November  ist,  to  organize  the  new  bank.  It  con- 
sisted of  the  members  of  the  Bank  of  Pennsylvania  and  nine  others.f  The 
act  of  incorporation  was  passed  by  Congress,  December  31st,  and  the  bank 
commenced  business  January  7,  1782,  on  the  north  side  of  Chestnut  street,  a 
short  distance  west  of  Third.  There  was  a  clause  in  the  charter  that  "  This 
ordinance  shall  be  construed  and  taken  most  favorably  and  beneficially  for 
said  corporation."    This  clause  was  copied  into  State  charters  and  became  a 


'  7  Journal  of  Congress,  107.     11  Dip.  Corr.  Rev.  J76. 


t  Lewis ;  Bank  of  North  America,  33. 


M 


i6 


A  HISTORY  OF  BANKING. 


I    I 


I) 


standing  feature  of  them  in  some  States.  Robert  Morris  was  one  of  the 
largest  stockholders,  but  was  never  a  director  or  other  officer  of  the  bank. 
Thomas  Willing  was  president.  The  day  that  the  bank  went  into  operation, 
Morris  noted  in  his  diary  that  he  had  paid  into  it  $200,000  for  the  subscrip- 
tion of  the  United  States.*  Gouge  doubts  whether  there  ever  was  any  sub- 
scription to  this  bank  except  that  of  the  government,  believing  that  even  the 
$70,000  above  mentioned  consisted  of  bonds  transferred  from  the  Bank  of 
Pennsylvania.  He  claims  to  have  undoubted  private  authority  for  the  state- 
ment that  people  who  were  interested  in  the  Bank  of  North  America  sent 
farmers  and  laboring  men  to  the  bank  to  get  silver  for  notes.  "When  they 
went  on  this  errand  of  neighborly  kindness,  as  they  thought  it,  they  found  a 
display  of  silver  on  the  counter  and  men  employed  in  raising  boxes  contain- 
ing silver,  or  supposed  to  contain  silver,  from  the  cellar  into  the  banking 
room,  or  lowering  them  from  the  banking  room  into  the  cellar.  By  con- 
trivances like  these,  the  bank  obtained  the  reputation  of  possessing  immense 
wealth ;  but  its  hollowness  was  several  times  nearly  made  apparent,  especially 
on  one  occasion  when  one  of  the  co-partners  withdrew  a  deposit  of  some 
$3,000  or  $6,000  when  the  whole  specie  stock  of  the  bank  did  not  probably 
exceed  $20,000.  "t  It  is  possible  that  this  story  arose  from  a  confusion  between 
the  Bank  of  North  America  and  "an  appendage  of  the  finance  office;"  for 
Robert  Morris  had  a  bureau  in  his  office,  in  which  borrowed  silver  was  laid 
out,  in  order  to  establish  a  fictitious  credit  for  the  Treasury. 

In  his  report  of  his  management  of  the  Treasury  Department,  submitted 
in  1785,  Morris  said  of  the  government  subscription:  "It  was  principally 
upon  this  fund  that  the  operations  of  that  institution  were  commenced,  and 
the  accounts  which  end  on  the  last  day  of  March  [1782]  will  show  that  the 
public  obtained,  before  that  day,  a  loan  of  $300,000,  being  the  total  amount 
of  their  then  capital.  This  loan  was  shortly  after  increased  to  $400,000, 
*  *  *  but  the  direct  loans  of  the  bank  were  not  the  only  aid  which  it 
afforded.  Considerable  facilities  were  obtained  by  discounting  the  notes  of 
individuals,  and  thereby  anticipating  the  receipt  of  public  money;  *  *  * 
and  in  addition  to  all  this,  it  must  be  acknowledged  that  the  credit  and  con- 
fidence which  were  received  by  means  of  this  institution  formed  the  basis  of 
that  system,  through  which  the  anticipations  made  within  the  bounds  of  the 
United  States,  had,  upon  the  ist  day  of  July,  1783,  exceeded  $820,000. 
There  was  due  also,  upon  that  day,  to  the  bank  directly,  near  $130,000. 
If,  therefore,  the  sum  due  indirectly  for  notes  for  individuals  discounted  and 
the  like  be  taken  into  consideration,  the  total  will  exceed  $1  milhon.  It  may 
then  be  not  only  asserted  but  demonstrated  that  without  the  establishment 
of  the  national  bank,  the  business  of  the  department  of  finance  could  not 
have  been  performed."  He  borrowed  of  the  bank  during  his  administration 
$1,249,975.  He  repaid  this  in  cash,  except  $253,394,  which  was  paid  by 
surrendering  the  stock  owned  by  the  United  States.     The  United  States  paid 


*  12  Dip.  CoiT.  Rev.  26. 


t  Journal  of  Banking,  137. 


EARLIEST  CON^ERT/BLE-NOTE  BANKS. 


17 


for  interest  on  loans  §29,719,  and  obtained  in  dividends  $22,867.*  The  date, 
July  2i,  1783,  is  given  as  tliat  upon  wiiich  private  individuals  had  taken  up 
all  the  shares  originally  subscribed  by  the  government. f  It  is  safe  to  say 
that  this,  the  first  "specie  paying,  convertible  bank  note  bank"  in  this 
country,  never  could  have  started  but  for  the  silver  borrowed  by  the  govern- 
ment from  France  and  placed  in  its  vaults. 

There  was  much  doubt  about  the  power  of  Congress  to  pass  an  act  of 
incorporation.  The  Virginia  delegates  reported  to  the  Governor  of  that 
State  that  they  had  consented  to  the  act  on  account  of  the  utility  of  the  bank, 
but  that  the  States  ought  to  ratify  the  act  of  Congress.  The  bank  determined 
to  seek  a  charter  from  Pennsylvania.  Objections  were  made  in  the  Assem- 
bly that  the  charter  was  perpetual  ;  that  the  bank  had  power  to  hold  real 
estate ;  and  that  the  president  of  it  had  encouraged  negotiations  with  General 
Howe  during  the  war.J  Nevertheless  the  act  was  passed  April  i,  1782.  An 
act  had  been  passed  a  fortnight  earlier,  in  that  State,  making  it  felony  to 
counterfeit  the  notes  of  the  bank. 

In  1782  a  proposition  was  made  to  Robert  Morris  to  found  a  bank  in 
New  Hampshire.     He  declined  and  nothing  came  of  it. 

In  1784  and  1785,  the  Bank  of  North  America  earned  14  per  cent.  In  the 
former  year  it  enlarged  its  capital  by  issuing  1,000  more  shares  at  $=500  each. 
This  led  to  the  foundation  of  a  rival  institution  which  was  on  the  point  of 
being  chartered,  when  the  new  subscription  was  extended  to  4,000  shares 
at  $400  a  share,  and  those  who  had  already  paid  in  $500  received  $100  back 
with  interest.  At  the  same  time  the  affairs  of  the  bank  became  disordered 
on  account  of  over-extension  of  its  business  in  the  attempt  to  defeat  the  new 
bank.  For  the  safety  of  the  community  "it  became  absolutely  necessary  to 
drop  the  idea  of  a  new  bank,  and  to  join  hand  in  hand  to  relieve  the  old 
bank  from  the  shock  it  had  received.  Gold  and  silver  had  been  extracted  in 
such  amounts  that  discounting  was  stopped,  and  for  this  fortnight  past  not 
any  business  has  been  done  at  the  bank  in  this  way.  The  distress  it  has 
occasioned  to  those  dependent  on  circulation  and  engaged  in  large  specula- 
tions is  severe;  and  as  if  their  crop  of  misery  must  overflow,  by  the  last 
arrival  from  Europe,  intelligence  is  received  that  no  less  a  sum  than  ^60,000 
sterling  of  Mr.  Morris's  bills,  drawn  for  the  Dutch  loan,  are  under  protest. 
It  is  well  known  that  the  bank,  by  some  means  or  other,  must  provide  for 
this  sum.  The  child  must  not  desert  its  parent  in  distress;  and  such  is 
their  connection  that  whatever  is  fatal  to  the  one  must  be  so  to  the  other. 
*  *  *  I  have  had  several  interviews  with  our  friend,  Gouverneur  Morris. 
He  is  for  making  the  Bank  of  New  York  a  branch  of  the  Bank  of  North 
America;  but  we  differ  widely  in  our  ideas  of  the  benefit  that  would  result 
from  the  connection."!  Disquieting  rumors  about  the  bank  had  been  cur- 
rent in  Holland  in  the  previous  January,  where  it  had  been  reported  that  the 


»  Nourse's  Report,  1790.  t  Lewis,  135.  }  Lewis,  45. 

$  Seton  to  Hamilton,  from  Philadelphia,  March  2-,  1784. 


II 


,1     i 


!, 


I        \ 


:.     '   . 


18 


/I  HISTORY  OF  BANKING. 


'      B.^ 


bank  had  stopped  payment  on  account  of  a  great  number  of  counterfeits  in 
circulation.* 

The  bank  had  been  born  of  necessity,  real  or  supposed.  At  the  time 
that  it  was  chartered  many  pubhc  men  had  felt  themselves  in  a  dilemma 
between  the  political  danger  and  the  financial  exigency.  As  soon  as  the 
war  had  ended  and  the  financial  exigency  seemed  less  obvious,  their  minds 
turned  with  greater  submission  to  the  fear  of  political  danger.  The  mass  of 
the  people,  so  far  as  they  thought  of  the  matter  at  all,  feared  the  bank  as  an 
engine  of  the  money  power,  and  anticipated  great  social  and  political  dan- 
gers from  it.  This  view  of  the  matter  was  put  forward  with  great  energy 
by  the  class  of  public  men  who  sought  to  be  popular  leaders,  and  also  by 
those  who  were  working  in  the  interests  of  rival  enterprises. 

Petitions  were  presented  to  the  Legislature,  March,  1785,  for  the  repeal 
of  the  act  incorporating  the  bank,  on  account  of  the  financial,  social,  and 
political  dangers  connected  with  it.  A  committee  was  raised  "to  inquire 
whether  the  bank  established  at  Philadelphia  was  compatible  with  the  public 
safety  and  that  equality  which  ought  ever  to  prevail  between  the  individuals 
of  a  republic."  The  committee  reported  that  the  bank,  as  then  managed, 
was  in  every  way  inconsistent  with  the  public  safety,  and  recommended 
that  its  charter  be  repealed.  The  bill  for  the  repeal  went  over  the  session, 
but  was  taken  up  on  the  first  day  of  the  Autumn  session  of  the  same  Assem- 
bly. Counsel  of  the  bank  were  allowed  to  argue  before  the  House,  but,  on 
the  13th  of  September,  1785,  the  charter  was  repealed. 

The  bank  now  fell  back  on  its  federal  charter,  but  there  were  so  many 
doubts  of  its  validity  that  the  attempt  was  made  to  get  another  State  charter. 
February  2,  1786,  Delaware  gave  one,  which  was  accepted,  and  it  was  de- 
dermined,  if  necessary,  to  move  to  some  city  in  Delaware. 

A  bank  war  was  now  opened  in  Pennsylvania,  which  contained  in  min- 
iature all  the  elements  of  the  war  that  raged  around  banks  for  the  next  fifty 
years. 

March  3,  1786,  a  memorial  from  624  citizens  of  Philadelphia  in  favor  of  the 
bank  was  presented,  in  order  to  bring  the  matter  up  again.  In  the  debate 
there  were  two  lines  of  thought  and  argument;  one  in  respect  to  the  social 
effect  of  a  bank  on  classes,  and  the  other  in  respect  to  the  political  effects  of 
a  bank  on  democratic  and  republican  institutions.  Morris  took  a  very  prom- 
inent part  in  these  debates  and  caused  them  to  be  published.  We  learn 
from  his  statement  that,  in  this  bank,  loans  upon  its  own  stock  were  re- 
garded as  its  most  regular  kind  of  business,  and  the  stockholders  were 
thought  to  be  warranted  in  borrowing  to  the  extent  of  their  stock.  The 
proposed  re-charter  of  the  bank  was  defeated  in  April. 

At  the  opening  of  the  November  session  it  was  evident  that  a  great  deal 
of  work  had  been  done  and  that  a  great  change  had  been  brought  about. 
A  committee  reported  that  some  amendments  in  the  charter  would  make  it 

♦  8  Life  and  Works  of  John  Adams,  174. 


f~4 


EARLIEST  CONl^ERTIBLE-NOTE  BANKS. 


iq 


he  time 
lilemma 
n  as  the 
r  minds 
mass  of 
nl{  as  an 
cal  dan- 
t  energy 
also  by 

le  repeal 
:ial,  and 
)  inquire 
le  public 
dividuals 
nanaged, 
nmended 
;  session, 
e  Assem- 
!,  but,  on 


free  from  objection.     The  bank  was  re-chartered  March  17,  1787,  for  fourteen 
years.     Its  capital  was  limited  to  two  million  dollars. 

It  is  stated  that  the  Bank  of  North  America  issued  penny  notes  about 
1790.* 

The  first  and  one  of  the  most  important  services  rendered  by  banks  in 
the  United  States  was  inculcating  punctuality.  At  the  end  of  the  Revolu- 
tionary war,  Philadelphia  was  the  only  place  in  the  country  where  commer- 
cial punctuality  was  general.  Banks  introduced  it  elsewhere. f  The  great 
fault  of  the  banks,  however,  was  that  they  did  not  impose  punctuality  on 
themselves  or  each  other. 

The  first  bank  chartered,  after  the  peace,  was  the  Bank  of  Massachusetts, 
February  7,  1784.  The  charter  was  originally  perpetual,  but  was  limited,  in 
1812,  with  the  consent  of  the  bank.  Amongst  the  rules  of  this  bank  were: 
the  full  names  of  all  delinquents  to  be  posted  in  the  bank,  in  order  to  avoid 
useless  applications  for  credit;  absolutely  no  renewals. J 

A  scheme  was  published  in  the  New  York  "Packet."  February  12,  1784, 
for  a  Bank  of  the  State  of  New  York.  Subscribers  to  the  stock  were  to  pay 
one-third  in  cash  and  the  other  two-thirds  in  mortgages  on  land  in  New 
York  and  New  Jersey,  appraised  at  not  more  than  two-thirds  of  its  value. 
If  necessary,  the  directors  were  to  borrow  one-third  of  the  value  of  the  land. 
A  fortnight  later  a  meeting  was  called  to  found  a  bank,  but  on  specie  only. 
Alexander  Hamilton  attributed  the  land  bank  scheme  to  Chancellor  Living- 
ston, who,  he  said,  had  carried  on  a  zealous  propaganda  in  its  favor.  In 
order  to  defeat  it,  Hamilton  started  another  scheme,  and  he  also  endeavored 
(as  it  appears,  successfully,)  to  show  the  fallacies  in  the  notion  of  a  land 
bank.  A  constitution  for  the  bank  was  drawn  up,  undoubtedly  by  Hamil- 
ton. One  of  the  rules  was  that  the  bank  should  not  deal  in  foreign  ex- 
change. There  was  so  much  eagerness  to  start  the  bank,  that  it  began  in 
June  without  a  charter.  The  rule  was  adopted :  "  No  discount  will  be  made 
for  longer  than  thirty  days,  nor  will  any  note  or  bill  be  discounted  to  pay  a 
former  one.     Payment  must  be  made  in  bank  notes  or  specie.  "§ 

Loud  complaints  were  raised  against  this  bank  as  soon  as  it  went  into 
operation.  It  was  charged  with  working  in  the  interest  of  British  capitalists 
and  traders,  but  it  is  plain  that  the  chief  ground  of  complaint  against  it  was 
the  punctuality  which  it  enforced.  It  will  be  seen,  in  the  course  of  this  his- 
tory, that  the  real  occasion  of  the  unpopularity  of  banks,  in  their  early  his- 
tory, was  that  they  were  having  this  effect,  which  produced  irritation  and 
resistance.  This  opposition  prevented  the  bank  from  obtaining  a  charter. 
It  also  stimulated  a  paper  money  party  which  wanted  a  State  issue,  and  ob- 
tained it  in  1786.  The  directors  of  the  Bank  of  New  York  thereupon  decided 
to  keep  two  sets  of  accounts,  and  in  fact  they  organized  two  banks — a 
"specie  bank  "  and  a  "  paper  bank  " — the  latter  doing  business  on  the  State 
paper;  the  former  using  the  denomination  dollars  and  the  latter  pounds.     A 


♦  Gouge  ;  Journal  of  Banking,  408. 
X  7  Bankers'  Magazine,  4. 


t  Blodgctt ;  Economica,  161  ;  3  Gallatin's  Writings,  370. 
)|  Domett;  Banl<ofNew  Yorli,  10,  19. 


\  I 
I  . 


If, 


I : 


i(  I 
(i 

ih  f 


/I 


1 


h'    '! 


I      SI, 


ao 


A  HISTORY  OF  BANKING. 


charter  was  at  length  obtained  in  1791.     One  clause  of  it  was  that  the  bank 
should  not  emit  any  notes  or  contract  debts  payable  in  the  State  paper. 

In  point  of  time  the  charter  of  the  Bank  of  Maryland  was  earlier  than  that 
of  the  Bank  of  New  York,  being  dated  1790.  The  Bank  of  Providence, 
Rhode  Island,  was  founded  in  1791 ;  the  Bank  of  Albany,  the  Bank  of  South 
Carolina,  unchartered,  and  the  Union  Bank  of  Boston  in  1792.  In  the  last 
year  also  the  Hartford  Bank  was  founded,  the  State  reserving  the  right  to 
take  forty  shares  within  twelve  months.  The  historian  of  this  bank  thinks 
that  its  assets,  at  its  outset,  "consisted  mainly  of  the  promissory  notes  of 
stockholders  endorsed  by  each  other,  with  a  moderate  sum  of  silver,  a  light 
sprinkling  of  gold  drawn  from  old  hoards,  and  possibly  a  few  notes  of  the 
Bank  of  North  America."*  One  of  the  rules  of  this  bank  was:  "What 
passes  in  the  bank  not  to  be  spoke  on  at  any  other  place."  This  expresses 
the  mystery  with  which  banking  at  this  time  was  surrounded.  Every  bank 
was  a  secret  society. 

The  Bank  of  Alexandria,  Virginia,  was  founded  November  23,  1792, 
with  a  capital  of  $iso,ooo,  increased  in  1795,  to  $3^0,000.  The  lowest 
denomination  of  notes  was  five  dollars,  its  debts  were  never  to  exceed  four 
times  its  capital.  Its  charter  was  to  last  ten  years.  It  was  given  power  for 
the  summary  collection  of  debts,  which  were  not  liable  to  the  stay  laws 
existing  in  the  State  at  the  time.  It  appears  that  this  bank  was  not  founded 
without  occasioning  alarm.  Pope,  of  Kentucky,  in  the  debate  of  181 1,  said 
that  the  Virginians  were  known  to  be  poor  financiers,  for  they  "  were,  a  few 
years  since,  frightened  at  the  very  name  of  a  bank.  *  ♦  *  *  |t  required 
all  the  eloquence  of  [Brent  of  Virginia]  to  persuade  the  Legislature  that  the 
little  Bank  of  Alexandria  would  not  sweep  away  their  liberties."  A  month 
later  the  Bank  of  Richmond  was  founded,  with  $400,000  capital,  to  last  until 
1804,  with  similar  provisions.  A  statement  is  met  with  that  from  1787  to 
1804  there  were  no  banks  in  Virginia,  except  the  branch  of  the  United  States 
Bank  at  Norfolk,  founded  in  1799,  and  that  the  circulation  was  metallic. f 

It  should  be  noticed  that  when  banks  began  to  be  founded,  the  notion  of 
a  national  bank  for  each  State  was  the  conception  on  which  they  were  con- 
structed. The  Bank  of  Massachusetts  was  expected  and  intended  by  its 
founders  to  be  the  only  bank  in  Massachusetts,  and  the  Bank  of  New  York 
was  founded  on  that  plan ;  whether  it  should  be  called  a  hope  or  an  inten- 
tion is  difficult  to  decide.  In  the  Southern  or  Southwestern  States,  this 
notion  of  a  Bank  of  the  State  became  the  source  of  a  great  number  of  institu- 
tions which  will  deserve  our  particular  attention.  Such  a  Bank  of  the  State 
might  exist,  like  the  Bank  of  England,  or  the  Bank  of  France,  although  there 
might  be  any  number  of  other  banks  by  the  side  of  it  in  the  same  State. 
One  consequence,  which  causes  very  great  perplexity  in  the  case  of  the 
great  Banks  of  the  States,  is  that  the  nomenclature  becomes  confused.  We 
find  a  Bank  of  South  Carolina,  a  State  Bank  in  South  Carolina,  and  a  Bank  of 


'    !(i 


♦  Woodward  ;  Hartford  Bank,  60. 


t  Gouge  ;  Journal  of  Banking,  253. 


EARLIFST  CONVERTIBLE-NOTE  BANKS. 


3\ 


the  State  of  South  Carolina  ;  in  other  cases  the  same  name  was  given  suc- 
cessively to  two  or  three  institutions  which  succeeded  one  another  in  time, 
and  were  all  called  the  Bank  of  the  State  of . 

Inasmuch  as  the  term  State  Banks  is  used  for  local  banks,  it  seems  desir- 
able to  speak  always  of  Banks  of  the  States  when  that  particular  group  is 
intended,  for  they  deserve  a  separate  name. 

Leavinj^  out  of  account  those  Banks  of  the  States  in  which  the  participa- 
tion of  the  State  was  limited  to  the  possession  of  some  stock  in  the  bank,  and 
which  may  be  better  thrown  out  of  this  group  altogether,  we  may  distinguish 
three  grades  of  Banks  of  the  States,  i. — Those  which  had  no  capital  at  all, 
being  "based  upon  the  faith  and  credit  of  the  State."  These  were  paper 
money  machines.  2. — Those  in  which  funds  belonging  to  the  State  were 
deposited  as  a  capital.  It  was  argued  that  the  State  might  better  "  bank  on  " 
its  own  funds,  for  schools,  improvements,  income  from  lands,  etc.,  than 
invest  them  in  loans  to  private  banks  or  otherwise.  3. — Those  which  com- 
bined with  the  latter  arrangement,  capital  subscribed  by  private  individuals. 


CHAPTER  III. 

The  First  Bank  oi  the  Unitkd  States  and  Its  Times. 


l>      '( 


PHE  act  ot  1789,  laying  duties  on  imports,  provided  that  they 
should  be  received  in  gold  and  silver  only.  In  April  of  the 
following  year,  Hamilton  made  a  report  on  the  operation  of  this 
law,  in  which  he  construed  it  to  mean  that  he  might  receive  the 
notes  of  banks  "issued  on  a  specie  fund;"  and  he  thougiit  that 
this  would  be  advantageous  to  the  government,  the  banks,  and  the  public. 
Hence  he  had  ordered  bank  notes  to  be  received  where  banks  existed,  but 
the  measure  was  understood  to  be  temporary,  and  would  be  changed  when- 
ever a  national  bank  was  founded.  * 

One  of  his  pet  ideas  was  a  national  bank.  He  submitted  a  paper  to  Con- 
gress, December  ij,  1790,  to  prepare  the  way  for  the  proposition  he  wished 
to  offer.  This  paper  shows  that  he  had  very  much  developed  his  ideas  on 
this  subject  since  the  earlier  plans  made  by  him,  which  we  have  already 
noticed.  The  charter  of  the  Bank  of  New  York,  which  came  from  his  hand, 
became  the  model  on  which  numberless  charters  were  afterwards  constructed, 
and  the  charter  of  the  Bank  of  the  United  States,  which  he  now  proceeded 
to  make,  was  taken  as  a  model  by  so  many  others  that  we  must  attribute  to 
his  opinions  on  banking  a  predominant  influence  in  forming  the  ba -iking 
institutions  of  this  country.  The  first  great  advantage  which  he  sees  in  a 
bank  is  that  it  augments  'the  active  or  productive  capital  of  a  country." 
In  the  explanation  of  this,  which  he  gives,  he  entirely  avoids  the  fallacy 
which  would  seem  to  be  involved  in  the  statement.  He  illustrates  it  by  the 
case  of  a  man  who  deposits  a  surplus  while  waiting  to  put  it  to  use,  so  that 
it  "is  in  a  condition  to  administer  to  the  wants  of  others,  without  being  put 
out  of  his  own  reach  when  occasion  presents."  He  has  in  view,  therefore, 
not  any  creation  of  capital,  but  a  more  effective  organization  of  capital,  by 
which  small  and  scattered  amounts  are  so  concentrated  as  to  be  made 
effective  instead  of  being  idle.  Upon  this  view  it  would  follow  that  when 
one  man  wanted  his  capital  some  other  man  would  probably  be  desirous  of 

•  I  Folio  Finance,  49. 


F/RST  BANK  OF  THE  UNITED  STATES. 


2) 


makinji  a  deposit;  from  which  it  would  result  that  some  constant  amount 
within  limits  could  be  dep.-nded  upon.  Unlortunately,  however,  Haniiitim 
mixed  up  this  sound  and  useful  view  of  a  bank  with  the  popular  misconcep- 
tion: "  It  is  a  well  established  fact  tliat  banks  in  ^nod  credit  can  circulate  a 
far  greati.r  sum  than  the  actual  quantum  of  their  capital  in  j^oUi  and  silver." 
This  is  the  fundamental  notion  of  all  ju^'ijliiiif  with  bank  issues.  He  here 
planted  a  germ  which,  as  we  shall  see,  grt'W  to  a  great  size  and  produced 
most  evil  fiuit.  It  taught  the  banker  to  believe  thai  his  legitim.ite  business 
was  to  carry  on  a  kind  of  high  class  conlidence  operation.  Next  H.imilton 
speaks  about  the  cases  in  which  the  operations  of  banking  legitimately  con- 
sist in  setting  otT things  against  each  other,  which  balance;  but  he  introduces 
the  cases  as  if  they  explained  the  possible  intlation  of  bank  issues,  and  as  if 
they  explained  ihe  transactions  with  actual  deposits  mentioned  in  the  first 
place.  H,iving  m'xed  and  confused  these  three  things,  he  concludes:  "This 
additional  employmeiit  given  to  mone>,  and  the  f.iculty  ot  a  bank  to  lend 
and  circulate  a  greater  sum  than  the  amount  of  its  stock  in  coin,  are,  to  all 
the  purposes  of  trade  and  industry,  an  absolul')  increase  of  capital."  The 
confusion  here  introduced  was  important  and  unfortunate,  especially  as 
regards  the  confusion  between  deposits  of  surplus  capital  and  the  supposed 
increase  of  capital  by  the  circulation.  The  gains  of .»  bank  must  come  either 
from  its  deposits  or  its  circulation.  Until  the  mi. Idle  of  the  nineteenth 
century  the  deposits  of  surplus  capital,  even  in  tbi  larger  cities,  were  small, 
for  the  reason  that  capital  was  always  in  such  active  employment  that  sur- 
pluses waiting  for  employment  were  not  fori;ied.  Any  encouragement, 
therefore,  which  was  given  to  the  notion  already  so  widely  current  that 
paper  issues  could  increase  capital  was  directly  mischievous.  Hainilton 
went  on  to  connect  this  also  with  the  opinion  which  he  said  prevailed  that 
there  was  a  lack  of  a  sufficient  supply  of  money.  He  thought  that  the  use 
of  barter  in  remoter  districts  was  a  proof  of  this,  and  he  showed  that  he 
participated  in  the  belief  that  a  bank  could  increase  the  amount  of  circulating 
medium  in  a  country, — that  is,  not  only  increase  the  amount  of  capital  avail- 
able for  employment  in  industry,  but  also  increase  the  amount  of  currency 
acting  on  prices  and  available  to  pay  debts.  As  the  confusion  of  these  two 
things  has  been  the  most  proi'ound  and  most  mischievous  error  in  the  entire 
currency  history  of  the  country,  the  fact  that  he  shared  in  it  and  lent  it  his 
authority  was  most  unfortunate  for  the  subsequent  history.  "  It  is  evident," 
he  says,  "that  whatever  enhances  the  quantity  of  circulating  money  adds 
to  the  ease  with  which  every  industrious  member  of  the  community  may 
acquire  that  portion  of  it  of  which  he  stands  in  need,  and  enables  him  the 
better  to  pay  his  taxes  as  well  as  to  supply  other  wants."  This  has  ever 
been  a  popular  notion,  and  his  enunciation  of  it  was  no  doubt  one  of  the 
most  effective  recommendations  of  his  plan. 

Answering  objections  made  against  banks,  he  shows  that  they  bring 
about  punctuality,  and  he  answered  very  correctly  the  complaint  that,  if 
foreigners  owned  the  stock,  there  would  be  a  drain  of  specie  to  pay  their 


If 


f- 


24 


A  HISTORY  OF  BANKING. 


111 


! 


t 


t 


1 


i!  i 


1|  ( 


dividends;  but  it  does  not  appear  that  these  arguments  had  any  effect  on 
public  opinion.  He  also  laid  down  the  doctrine,  which  may  be  called  the 
kernel  of  the  "credit  system,"  which  was  made  the  subject  of  so  much 
debate  and  eloquence  in  the  next  fifty  years, — namely:  that  banks  help  hon- 
est, indus*'ious,  and  enterprising  men  by  furnishing  them  the  capital,  which 
is  the  only  thing  they  need  to  become  very  efficient  producers,  and  that 
they  help  the  same  class  of  men,  when  they  have  met  with  misfortune,  to 
recover.  As  to  the  abundance  or  lack  of  the  precious  metals,  that  seems  to 
him  to  depend  on  the  balance  of  trade;  and  he  is  quite  sure  that  each  state 
ought  to  have  a  supply  of  "the  money  of  the  world,"  and  of  the  metals 
which  are  a  "species  of  the  most  effective  wealth."  "Notwithstanding 
some  hypotheses  to  the  contrary,  there  are  many  things  to  induce  a  sus- 
picion that  the  precious  metals  will  not  abound  in  any  country  which  has 
not  mines  or  variety  of  .lanufj'cturcs." 

He  condemns  State  issues.  "Though  paper  emissions  under  a  general 
authority  [/.  c,  federal]  might  have  some  advantages  not  applicable,  and  be 
free  from  .some  disadvantages  which  are  applicable,  to  the  like  emissions  by 
the  States  separately,  yet  they  are  of  a  nature  so  liable  to  abuse,  and,  it  may 
even  be  affirmed,  so  certain  of  being  abused,  that  the  wisdom  of  the  govern- 
ment will  be  shown  in  never  trusting  itself  with  the  use  of  so  seducing  and 
dangerous  an  expedient."  He  next  points  out  the  exact  difficulty  and  dan- 
ger of  such  issues,  although  at  the  same  time  his  argument  exposes  the  fallacy 
of  the  doctrine  which  he  had  just  stated,  that  banks  could  increase  the  amount 
of  circulating  medium.  "  Among  other  material  ditferences  between  the 
paper  currency  issued  by  the  mere  authority  of  government  and  one  issued 
by  a  bank  payable  in  coin  is  this  :  that  in  the  first  case  there  is  no  standard 
to  which  an  appeal  can  be  made  as  to  the  quantity  which  will  only  satisfy, 
or  which  will  surcharge  the  circulation  ;  in  the  last,  that  standard  results 
from  the  demand.  If  more  should  be  issued  than  is  necessary,  it  will  return 
upon  the  bank." 

If  that  is  so,  how  can  a  bank  "enhance  the  quantity  of  circulating 
money?"  If  his  reasoning  is  correct,  (and  it  is  that  which  is  accepted  by 
all  the  best  authorities),  it  is  far  more  certain  that  there  can  be  no  deficiency 
below  the  "  standard  "  set  by  the  "demand  ;  "  for  it  would  be  satisfied  by 
obtaining  specie.  In  short,  the  reasoning,  in  order  to  be  thrown  into  cor- 
rect and  productive  order,  must  begin  with  and  proceed  from  the  notion  of 
the  requirement  as  the  predominant  and  coordinating  conception. 

We  are  not  without  a  verdict  of  history  upon  these  notions  of  Hamilton 
about  bank  currency.  The  keynote  of  his  doctrine,  and  the  keynote  of  the 
banking  system  of  the  next  fifty  years  is  in  the  following  passage:  "Gold 
and  silver,  when  they  are  employed  merely  as  the  instruments  of  exchange 
and  alienation,  have  been,  not  improperly,  denominated  dead  stock  ;  but 
when  deposited  in  banks  to  become  the  basis  of  a  paper  circulation,  which 
takes  their  character  and  place  as  the  signs  or  representatives  of  value,  they 
then  acquire  life,  or  in  other  words,  an  active  and  productive  quality,"    The 


FIRST  BANK  OF  THE  UNITED  STAIES. 


25 


Bank  Commissioners  of  Ohio,  in  1842,  in  the  bitti.T  retrospect  of  the  previous 
live  years,  quoted  these  words  in  order  to  say:  "The  experience  of  more 
than  half  a  century  since  this  opinion  was  expressed  has  failed  to  convince 
the  American  people  that  gold  and  silver  are  to  be  regarded  as  dead  stock, 
except  when  placed  in  banks  as  a  basis  for  the  issue  of  their  paper.  This 
idea  that  gold  and  silver  acquire  life,  activity  and  productiveness,  only  when 
placed  in  banks  as  a  basis  for  paper  issues,  rejts  upon  the  assumption  that 
bank  notes,  to  an  indeterminate  extent,  may  be  thrown  into  circulation,  and 
that  a  proportionate  increase  will  be  given  to  the  commercial,  manufacturing, 
and  agricultural  interests  of  the  country."  Out  of  the  same  period  of  sack- 
cloth and  ashes,  when  delusions  had  beer  dispelled  and  things  appeared  in 
their  naked  truth,  the  Governor  of  Ohio  said  :  "The  great  error  which  pre- 
vails on  this  subject  [banks  of  issue]  ha^'  its  origin  in  the  common,  vague 
impression  that  we  are  .-dependent  on  the  bank  paper  system  for  the 
supply  of  a  sufficient  au-.r.tity  of  the  circulating  medium,  and  that,  without 
bank  paper,  commerce  would  not  flourish,  business  would  stagnate,  and 
the  country  cease  to  advance  in  prosperity  and  improvement.  This  fallacy 
is  the  chief  cause  of  that  superstitious  attachment  to  the  paper  system  which 
with  some  has  become  idolatry."  "Vain  indeed  would  be  the  attempt  to 
hedge  in  the  circulating  medium  of  a  country  and  pump  it  up  to  fullness  by 
the  ministry  of  banking  institutions." 

Hamilton  also  laid  great  stress  on  the  function  of  banks  to  make  loans  to 
the  government  in  case  of  financial  exigency,  and  also  to  help  tax  payers  to 
pay  taxes.  Loans  to  government  lock  up  the  capital  of  a  bank  and  make  it 
cease  to  be,  as  a  bank.  Although  a  bank  might  loan  capital  for  the  payment 
of  duties  (the  case,  in  fact,  which  Hamilton  puts  in  illustration),  it  certainly 
would  not  lend  a  man  means  to  pay  his  personal  taxes,  which  are  an  irre- 
coverable expenditure.  These  two  points  belong  under  the  head  of  the 
political  functions  and  benefits  of  a  national  bank.  They  were  very  promi- 
nent amongst  Hamilton's  motives  for  wanting  one.  Furthermore,  without 
dilating  upon  it,  he  put  into  a  very  concise  and  pointed  statement  his  view 
of  the  political  philosophy  of  a  national  bank.  It  "is  not  a  mere  matter  of 
private  property,  but  a  political  machine  of  the  greatest  importance  to  the 
State."  The  history  of  the  first  Bank  of  the  United  States,  and  still  more 
that  of  the  second  one,  is  a  most  instructive  experiment  to  test  the  validity 
of  this  conception  of  such  an  institution  under  the  political  and  social  cir- 
cumstances of  the  United  States. 

Finally  he  makes  an  argument  against  two  of  the  pet  ideas  which  we 
have  already  seen  so  active  in  connection  with  financial  devices  from  the 
first  settlement  of  the  country — namely,  the  notion  of  paper  issues  on  land 
security,  and  the  notion  of  banking  by  the  State,  as  a  means  of  profit  by 
which  public  expenditures  may  be  provided  for  without  taxation.  His  argu- 
ments on  these  points  apparently  had  no  effect,  for  we  shall  find  that  these 
two  notions  held  sway  for  fifty  years  more,  and  were  more  destructive  to  the 
happiness  and  prosperity  of  one  section  after  another  than  pestilence  or  famine. 


-vr 


\k  \ 


It  i 


\   : 


I    I 


a6 


A  HISTORY  OF  BANKING. 


This  paper,  therefore,  consists  of  a  jumble  of  ill-digested  observations,  in 
which  correct  and  incorrect  views  are  entangled  with  each  other.  In  read- 
ing it,  as  in  the  case  of  Hamilton's  other  economic  papers,  the  reader  is  con- 
stantly forced  to  think:  If  this  writer  had  read  Adam  Smith,  he  would  have 
been  led  to  just  that  refinement  of  analysis  and  elucidation  of  his  ideas, 
which  would  have  led  them  out  of  crude  inaccuracy  into  exactitude  and  cor- 
rectness. That  Hamilton  had  perused  Adam  Smith's  book  is  unquestion- 
able. This  only  makes  it  the  more  remarkable  that  a  man  of  his  well-proved 
mental  power,  should  give  such  evidence  that  Smith's  book  had  not  affected 
his  thinking,  to  any  ascertainable  degree. 

In  the  debate  upon  the  charter  of  the  first  Bank  of  the  United  States,  in 
the  House  of  Representatives,  three  elements  may  be  distinguished,  the  con- 
stitutionality, the  social  antagonism,  and  the  sectional  antagonism.  The 
first  turned  upon  the  question  whether  the  government  of  the  United  States, 
which  had  been  created  by  the  Constitution,  was  endowed  with  the  power 
to  pass  acts  of  incorporation.  Madison  was  the  leader  of  the  negative,  and, 
both  by  his  authority  and  his  arguments,  furnished  that  side  with  its  chief 
strength.  He  affirmed  that  the  Constitutional  Convention  had  refused  to  in- 
sert amongst  the  powers  of  Congress,  that  to  incorporate,  because  it  had 
been  said  that  this  would  give  the  power  to  make  a  bank.  Inasmuch  as  the 
question  of  power  to  incorporate  a  bank  had  arisen  in  respect  to  the  Bank  of 
North  America  under  the  Confederation,  the  non-conferment  of  this  power 
in  the  new  Constitution  was  undoubtedly  a  pregnant  omission.  The  advo- 
cates of  the  bank  had  no  little  difficulty  to  find  a  clause  under  which  it  could 
be  implied.  Hamilton,  when  called  on  by  Washington  to  submit  an  argu- 
ment on  the  objections  which  had  been  raised  against  the  bank,  put  its  con- 
stitutionality on  the  ground  that  the  Constitution  had  created  a  sovereign 
state,  endowed  with  all  necessary  powers  for  the  functions  which  it  was 
called  upon  to  perform.  The  opponents  gave  to  "sovereignty"  its  most 
absolute  and  abstruse  meaning.  One  of  their  chief  reasons  for  detesting  the 
bank  was  that  they  thought  that  it  would  help  to  support  the  conception  of 
the  federal  Union  as  a  confederated  state  with  sovereign  powers.  Thus  the 
bank  was  placed  from  the  outset  in  the  midst  of  the  battle  of  State  rights. 
They  also  construed  the  power  to  incorporate  as  an  especially  majestic  and 
prerogative  function  of  a  sovereign.  Hamilton  met  the  former  issue  quite 
squarely.  He  construed  acts  of  incorporation  as  no  more  awe-inspiring  than 
other  acts  of  legislation,  and  presented  the  bank  as  a  pure  question  of  legis- 
lative expediency. 

The  social  antagonism  reached  little  other  expression  than  a  growl  of 
suspicion  and  dread  that  this  institution  was  to  be  an  engine  of  the  money 
power;  that  it  was  contrary  to  equality;  that  it  would  benefit  only  the 
rich.""  This  antagonism  was  but  an  incident  in  the  great  warfare  inside  of 
modern  society;  numbers  against  capital;  democracy  against  plutocracy; 

*  There  is  no  limit  to  tlie  flexibility  of  political  arguments.     The  argument  against  the  Bank  of  England  when  it  was 
founded  was  that  lianks  had  never  existed  except  in  republics  and  were  unfit  for  monarchies. 


FIRST  BANK  OF  THE  UNITED  STATES. 


3^ 


the  struggle  to  acquire  against  the  vested  interest ;  the  caprice  of  the 
moment  against  the  established  institution.*  This  struggle  in  all  its  phases 
will  be  seen  raging  around  both  the  first  and  the  second  Bank  of  the  United 
States. 

The  sectional  antagonism  included  also  the  antagonism  of  city  against 
country.  The  North  had  the  free  capital,  because  the  planters  could  always 
employ  more  capital  than  they  could  get,  on  their  lands.  The  North  also 
had  commerce  and  a  diversified  industry.  The  South  was  agricultural ;  it 
had  fewer  and  smaller  cities ;  its  views  and  prejudices  were  strongly  marked 
by  these  peculiarities.  It  was  a  special  complaint  of  the  southerners  that 
only  federal  stocks  were  subscribable  into  the  stock  of  the  bank.  These 
stocks  had  passed  into  the  possession  of  the  North,  the  southerners  having 
sold  them  in  order  to  use  the  capital  on  the  land.  Their  State  stocks  could 
not  be  subscribed. 

The  first  objection,  that  about  the  constitutionality  of  the  Bank,  occupied 
by  far  the  most  attention  in  the  debate.  It  suited  the  temper  of  the  time. 
It  deserves  our  especial  notice  because  it  never  was  silenced  until,  in  Tyler's 
time,  it  extinguished  a  great  national  bank  as  an  American  institution. 

The  charter  passed  the  House,  February  25,  1791,  thirty-nine  to  twenty. 
There  were  three  votes  from  the  north  of  the  Potomac  against  it,  and  three 
from  the  south  of  the  Potomac  for  it. 

There  is  a  tradition  that  Washington  wrote  a  veto  of  the  Bank  act,  but 
that  Hamilton  persuaded  him  to  sign  it.  No  evidence  can  be  found  to  sup- 
port iliis  tradition. 

The  Bank  was  chartered  for  twenty  years;  to  be  located  at  Philadelphia; 
to  issue  no  notes  under  $10;  to  have  twenty-five  directors;  only  stockholders 
residents  of  the  United  States  might  vote  by  proxy;  seven  directors  were  to 
constitute  a  quorum;  no  foreigner  was  to  be  a  director;  the  directors  were  to 
elect  the  president,  who  was  to  be  compensated  while  the  directors  were 
not  to  be  compensated ;  one  quarter  of  the  directors  were  to  be  elected  each 
year;  one  share  was  to  have  one  vote,  three  shares  two  votes,  five  shares 
three  votes,  and  so  on  until  one  hundred  shares  had  twenty  votes.  The 
Bank  was  to  report  to  the  Secretary  of  the  Treasury  at  his  demand  not  oftener 
than  weekly,  and  that  officer  might  inspect  the  books  except  private  accounts. 
The  notes  of  the  Bank  were  to  be  receivable  for  dues  to  the  Treasury  of  the 
United  States.  The  Bank  was  to  hold  no  land  or  buildings  except  for  its 
own  use  or  by  foreclosure.  It  was  not  to  buy  or  sell  goods  except 
forfeited  collateral.  It  might  sell  but  not  buy  public  stocks. f  The  rate  of 
interest  was  limited  to  six  per  cent.  The  Bank  was  not  to  loan  the  United 
States  over  $100,000  without  an  act  of  Congress,  nor  any  State  more  than 
$50,000,  nor  any  foreign  potentate  anything.  Congress  was  to  charter  no 
other  bank.  The  capital  was  to  be  $10,000,000  in  shares  of  $400  each, 
$8,000,000  of  which  was  to  be  subscribed  by  individuals,  and  $2,000,000  bv 


when  it  wu 


•  See  Maclay,  Senate  Debates,  355  ;  373,  and  [John  Taylor],  Principles  .ind  Tendency  of  Certain  Public  Measures, 
t  That  is,  as  we  should  now  say.  United  States  bonds. 


f- 


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i 

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. 


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28 


A  HISTORY  OF  BANKING. 


ry 


the  United  States.  The  private  subscriptions  were  payable  in  four  install- 
ments, the  first  at  the  time  of  subscription,  the  second  six  months  later,  the 
third  one  year  later,  and  the  fourth  after  eighteen  months.  One  quarter  of 
each  installment  was  to  be  paid  in  gold  or  silver,  and  three-quarters  in  public 
stocks;  the  six  per  cents  at  par  and  the  three  per  cents  at  fifty.  No  private 
subscription  was  to  exceed  a  thousand  shares.  The  Bank  might  go  into 
operation  when  $400,000  had  been  paid  in  in  gold  and  silver. 

A  provision  was  inserted  against  Hamilton's  plan  and  judgment,  provid- 
ing for  branches.  Sooner  or  later  such  were  organized  at  Boston,  New  York, 
Baltimore,  Washington,  Norfolk,  Charleston,  Savannah,  and  New  Orleans. 
For  the  fiscal  operations  of  the  government,  the  branches  were  very  useful, 
and  we  have  no  information  that  any  evils  were  produced  by  them  in  the 
first  Bank ;  but  later  experience  with  branches  in  the  United  States  has  been 
almost  uniformly  bad.  * 

Hamilton's  Bank,  created  by  this  charter,  fell  in  with  the  notion  of  a  bank 
which  then  and  long  afterwards  prevailed  in  this  country.  "What  is  that," 
said  Daniel  Webster,  "without  which  any  institution  is  not  a  bank  and  with 
which  it  is  a  bank  ?  It  is  a  power  to  issue  promissory  notes  with  a  .-iew  to 
their  circulation  as  money.  Our  ideas  of  banking  have  been  derived  princip- 
ally from  the  act  constituting  the  first  Bank  of  the  United  States,  the  organ- 
ization and  powers  of  which  were  imitated  from  the  Bank  of  England."! 
"Banking  in  America,"  said  Gallatin,  "always  implies  the  right  and  practice 
of  issuing  paper  money  as  a  substitute  for  a  specie  currency."!  The  free 
banking  law  of  New  York,  in  1838,  first  defined  a  bank  without  any  reference 
to  the  function  of  note  issue. 

Let  it  be  permitted  to  introduce  at  this  point  what  it  seems  necessary  to 
say  in  regard  to  the  nature  and  functions  of  a  bank. 

The  inconvenience  of  barter  consists  in  the  lack  of  coincidence  between 
the  persons  who  desire  to  exchange,  with  respect  to  the  commodities, 
amounts,  and  qualities.  Money  overcomes  this,  but  it  is  stiff  and  angular  in 
its  operation.  Every  step  must  be  taken  and  no  cross  cuts  are  possible. 
What  we  call  credit,  in  connection  with  currency,  introduces  harmony  and 
rythm.  By  combination  of  steps,  an  accelerated  movement,  and  abbreviated 
operations,  many  processes  which  are  necessary  in  the  use  of  money  may  be 
omitted  in  the  use  of  credit.  They  are  understood,  or  taken  for  granted,  or 
are  simply  recorded  until  they  are  cancelled  by  some  subsequent  operation. 
These  are  the  facts  which  led  to  the  invention  of  banking,  and  to  the  devices 
by  which  it  is  carried  on.  Various  paper  instruments  have  been  devised  for 
convenience  in  these  processes.  It  is  a  most  mischievous  mistake  to  include 
them  in  the  definition  of  money.  That  introduces  confusion  at  the  first  step 
and  leads  to  fallacies  at  every  step  of  deduction.  The  paper  instruments 
abbreviate  the  processes  and  avoid  the  need  of  money. 


•  "  The  Farmer's  Register  "  of  Petersburg,  Va.,  said  of  the  branch  banic  system,  in  184a,  that  it  "  alone  would  serve  to 
render  any  bank  irresponsible  and  therefore  corrupt  and  dishonest." 
teWorIra,  127.  (i8j9) 
t  J  Writings,  369. 


FIRST  BANK  OF  THE  UNITED  ST.  'TES. 


29 


A  bank  intervenes  between  lenders  and  borrowers  and  itself  performs  both 
operations.  It  gathers  up  capital  from  the  lenders  and  distributes  it  to  bor- 
rowers. Then  it  collects  it  again  from  the  borrowers  and  returns  it  to  the 
lenders.  The  pulsations  of  this  movement  are  the  life  phenomena  of  a  bank. 
When  the  pulsations  are  high,  sharp,  and  well  accentuated,  the  vitality  of 
the  bank  is  high  and  its  efficiency  in  rendering  all  the  capital  in  existence  as 
efficient  as  possible  is  very  great.  When  the  pulsations  drag,  are  broken, 
and  unpronounced,  the  efficiency  of  the  bank  is  low.  It  tends  to  rest  and 
idleness.  The  latter  case  is  what  is  commonly  called  a  lock-up  of  capital. 
It  is  a  negation  of  the  sense  and  activity  of  the  institution.  It  is  only  banks 
whose  movement  is  at  the  highest  pitch  of  energy  which  can  maintain  a  bank 
note  circulation  under  the  free  control  of  the  banker,  and  then  the  circulation 
will  be  involved  in  the  business  risks  attending  the  discount  and  deposit 
operations. 

The  stockholders  are  also  lenders  of  their  own  capital  which  is  amal- 
gamated with  what  they  borrow  to  lend  again.  Banks  hold  an  auxiliary  or 
ancillary  position  in  the  economic  organization.  They  hold  a  certain  amount 
of  capital  free,  which,  since  it  is  free,  is  in  the  form  of  money,  which  they 
bring  to  bear,  now  at  one  point,  now  at  another,  in  the  operations  of  the 
industrial  system,  as  it  is  wanted,  especially  to  bridge  over  intervals  of  time. 
They  thus  prevent  any  arrest  in  the  operations ;  keep  up  the  certainty  of  the 
movements  of  the  market,  and  sustain  the  rythmical  movement  by  virtue  of 
which  it  is  possible  to  calculate  on  the  future.  They  prevent  loss  and  waste, 
and  maintain  the  efficiency  of  all  parts  of  the  system.  They  produce  nothing 
at  all  directly.     They  are  operative,  not  creative. 

It  follows  that  of  course  it  is  a  question  of  organization  how  great  the 
amount  and  proportion  of  bank  capital  should  be.  It  is  a  part  of  the  total 
capital  which  is  set  off  to  this  auxiliary  function.  The  total  organization  is 
more  efficient  by  virtue  of  it,  but  it  can  easily  enough  be  out  of  proportion 
either  way.  The  question  how  great  it  ought  to  be  in  a  given  case  can 
never  be  answered  except  by  experiment. 

In  the  supplementary  charter  of  the  Bank  of  England  *  that  insti- 
tution is  given  the  sole  right  to  "borrow,  owe  or  take  up  any  sum 
or  sums  of  monjy  on  their  notes  or  bills  payable  at  demand,"  etc. 
There  was  no  delusion  there  about  the  difference  between  bank  notes 
and  money,  nor  about  the  fact  that  what  a  bank  does,  when  it  issues 
notes,  is  that  it  borrows  and  takes  up  money  and  therefore  owes  it.  Any 
one  who  issues  notes  takes  a  corresponding  amount  of  specie  out  of  the  cir- 
culation, which  is  there  or  would  be  there,  but  for  this  interference.  It  is 
proper  to  approach  the  matter  by  conceiving  of  the  community  as  provided 
with  specie  enough  to  do  its  business  with,  according  to  the  ratio  of  its  bus- 
iness to  that  of  the  commercial  world  taken  on  the  total  amount  of  money 
metal  in  existence.     The  note  issuers  take  this  ay^ay  and  put  their  notes  in 


7  Anne  c.  7,  (1708). 


\CF^ 


r:M| 


30 


A  HISTORY  OF  BANKING. 


V  '  »'*' 


I      ! 


its  place;  or,  they  obtain  the  possession  of  an  equivalent  capital  which  is 
imported  when  the  displaced  metal  is  sold  abroad  for  real  capital.  This  is 
the  capital  which  they  lend,  and  the  one  which  produces  the  interest  which 
they  obtain  on  their  notes.  As  there  are  four  or  five  steps,  and  they  are  all 
out  of  sight,  at  least  so  far  as  their  connection  with  the  operation  of  the  bank 
is  concerned,  there  is  room  for  a  great  number  of  partial  and  fallacious  inter- 
pretations. It  comes  to  be  believed  that  bank  notes  have  a  substantive 
existence,  that  they,  on  which  interest  is  obtained,  are  not  like  the  notes  of 
individuals,  on  which  interest  is  paid  ;  in  short,  that  they  are  money,  per- 
haps even  capital. 

The  view  of  notes  as  supplanting  specie  to  an  exactly  equal  amount  is 
what  is  called  the  "currency  principle."  According  to  it  the  note  issuers 
have  a  monopoly  privilege  and  strive  with  each  other  for  shares  in  a  quantum 
of    .i.'..:\  ■'  ■     h  cannot  be  surpassed. 

\  v.  >  -^p  class  of  credit  operations,  however,  consists  in  what  we 
might  .'.  , .  nded  exchanges.  Half  the  exchange  operation  is  performed 
but  the  other  half  is  delayed  under  a  promise  or  contract  of  later  delivery.  A 
bank  p"  between.  It  fulfils  the  contract  at  once  and  does  the  waiting, 
if  no  dcu!  v....  n  oc- .  .■ .  ill  the  givings  and  takings  will  be  equal,  plus  a  com- 
mission for  waiting,  i  &  refore,  a  bank  could  intervene  in  all  the  cases  of 
suspended  exchange  which  occur  in  the  market,  it  could  keep  an  account  of 
debit  and  credit  with  all  the  parties.  At  the  end  of  a  certain  time  all  the 
entries  would  balance,  except  for  the  commission  which  would  fall  to  the 
bank  as  reward  for  its  services,  and  all  the  transactions  would  be  closed. 
If,  therefore,  the  bank  could  get  all  the  transactions  into  its  hands,  and  prom- 
ise to  pay  everybody,  it  would  need  to  pay  nobody.  The  whole  would  be 
resolved  into  a  book-keeping  transaction.  If,  moreover,  all  those  who  had 
money  would  carry  it  to  the  banker  for  safe  keeping,  it  is  with  this  money 
that  he  would  pay  in  the  few  cases  in  which  for  any  reason  the  use  of 
money  was  actually  called  for. 

In  these  last  observations  lie  the  magic  and  mystery  of  banking.  If  only 
the  requisite  prestige  ("credit; "  "confidence ")  can  be  won  to  set  the  insti- 
tution in  operation,  it  is  self-acting,  and  all  that  the  happy  manager  has  to 
do  is  to  take  toll  from  its  operations.  The  legitimate  way  to  win  the  pres- 
tige is  by  offering  guarantees  of  capital  and  character.  Another  way  is  to 
impose  by  inflated  words  and  pompous  parade  upon  the  credulity  of  the 
bystanders.     This  history  will  show  the  difference  between  the  two. 

We  can  go  one  step  further.  It  would  be  a  great  additional  advantage  if 
the  transactions  were  not  only  recorded  on  the  books  of  the  bank,  but  if  also 
evidence  of  them  was  transcribed  on  portable  records,  which  could  be 
shown  and  transferred  by  the  parties  in  the  market  as  their  interests  in  fur- 
ther transactions  might  render  desirable.  The  bank  therefore  "issues" 
paper  evidences  of  the  existing  contracts  which  may  take  any  convenient 
form.  Bank  notes  are  one  form.  Their  great  convenience  is  that  they  are 
entirely  impersonal,  and  betray  nothing  of  the  mode  or  occasion  of  the 


FIRST  BANK  OF  THE  UNITED  STATES. 


3' 


contract  by  which  their  possessor  obtained  them  from  the  bani<,  while  they 
enable  him  to  divide  his  credit  as  he  sees  fit  and  to  buy  what  he  wants 
without  further  guarantee.  Since  all  the  transactions  will  cancel  within  a 
brief  period,  all  the  paper  evidences  will  return  to  the  bank  within  that 
period,  ll  will  then  be  found  that  the  bank  has  only  "furnished  a  medium  " 
for  all  the  transactions.  We  have  here  a  striking  illustration  of  the  way  in 
which  phrases,  in  this  domain,  alter  their  meaning  before  the  man  who  uses 
them  is  aware  of  it.  To  "furnish  a  medium,"  on  the  currency  principle, 
means  to  provide  the  community  with  a  currency,  in  the  belief  that,  but  for 
this  provision,  it  would  have  none,  while  in  fact  the  bank  takes  away  specie 
to  give  paper.  On  the  banking  principle,  the  bank  does,  in  a  legitimate 
sense,  furnish  a  medium  of  credit  in  operations  in  which  money  is  dispensed 
with,  and  a  kind  of  barter  of  a  higher  grade  is  reintroduced,  money  being 
used  as  a  standard  of  reference  for  the  terms  of  the  barter.  All  the  persons 
in  the  market  may  find  themselves  in  a  snarl  of  debts  which  would  hinder 
them  all  from  moving,  but  there  would  be  a  thread  of  mutual  or  consecutive 
obligations  which,  if  it  could  be  found  and  drawn  out,  would  absolve  them 
all.     The  bank  operations  effect  this. 

This  latter  set  of  facts  is  the  one  on  which  the  "banking  principle"  is 
based.  Both  principles  are  true,  but  no  one  has  yet  succeeded  in  defining 
their  spheres  or  their  relation  to  each  other.  The  only  line  which  can  be 
drawn  between  them  is  a  vague  and  empirical  one ;  that  the  small  notes  are 
under  the  currency  principle  and  the  large  notes  under  the  banking  principle. 
The  latter  are  used  in  the  greater  transactions  of  business;  the  former 
in  expenditures  for  consumption.  Hence  the  earnest  attempt  of  the  banks, 
which  we  shall  see  in  this  history,  to  get  the  right  of  emitting  small  notes, 
and  also  the  constantly  repeated  effort  of  currency  reformers  to  forbid  the 
same.  The  small  notes,  under  the  currency  principle,  were  a  permanent 
loan  obtained  by  the  banks  from  the  public,  but  they  also  compelled  simple 
and  uneducated  people  to  hold  a  stake  in  the  prosperity  of  the  bank  with 
which  they  had  nothing  to  do,  an.,  on  which  stake  they  might  lose  but 
never  could  gain. 

It  will  be  seen  that  the  bank  projectors  of  the  17th  and  i8th  centuries 
mentioned  above.  Chapter  I,  had  won  a  vague  and  imperfect  perception  of 
the  facts  underlying  the  banking  principle.  They  were  trying  to  enunciate 
its  doctrines  and  devise  an  institution  to  operate  upon  them. 

The  arguments  in  favor  of  bank  note  currency  in  this  country  have  always 
been  made  from  ihe  standpoint  of  the  banking  principle.  That  currency 
was  always  on  the  currency  principle.  The  banking  principle  fails  entirely 
when  loans  are  made  on  accommodation  paper,  or  on  land,  or  on  long  con- 
tracts of  any  kind.  Hence  in  the  history  of  American  banking,  the  banking 
principle  appears  to  have  been  a  delusion. 

In  the  paper  in  which  he  first  laid  before  Congress  the  arguments  for  a 
Bank  and  the  outline  of  his  plan,  Hamilton  made  a  special  explanation  and 
defence  of  two  features  in  it.    The  first  was  the  provision  that  shares  in  the 


32 


A  HISTORY  OF  BANKING. 


V      II 


public  debt  might  be  subscribed  into  the  capital.  The  purpose  of  this  was 
"to  enable  the  creation  of  a  capital  sufficiently  large  to  be  the  basis  of  an 
extensive  circulation,  and  an  adequate  security  for  it."  He  wanted  to  make 
a  large  issue;  he  thought  it  impossible  to  collect  a  large  amount  of  specie;  he 
had  rejected  the  notion  of  an  issue  based  on  land  security;  therefore,  taking 
his  model  from  the  Bank  of  England,  he  based  the  issue  on  debt.  The  best 
waiters  on  banking,  in  the  third  decade  of  the  nineteenth  century,  had 
generally  reached  the  conviction  that  the  capital  of  a  bank  ought  to  be 
invested  in  some  permanent  security,  and  that  the  operations  should  be 
carried  on  with  the  notes.  Evidently,  if  a  bank  should  be  formed  by  an 
association  of  capitalists  who  should  buy  bonds  with  the  capital  and  carry  on 
the  business  with  the  notes;  or  if  they  should  be  already  owners  of  govern- 
ment bonds,  which  they  subscribed  as  capital,  printing  notes  for  use  in 
banking;  or  if  they  should  lend  their  capital  to  the  government  as  a  book 
debt  and  obtain  the  franchise  of  note  issue  with  which  to  do  banking,  as  the 
Bank  of  England  did  in  the  first  place;  or  if  they  should  organize,  as  our 
national  banks  now  do,  it  would  all  amount  to  the  same  thing.  When  the 
first  Bank  of  the  United  States  was  organized,  the  government  did  not  need 
to  borrow  and  did  not  obtain  any  loan  by  the  subscription  of  the  public  stock 
into  the  capital.  That  arrangement  never  had  any  proper  cause  or  excuse, 
and  only  served  to  give  occasion  for  some  clamor  against  the  Bank,  as  a 
piece  of  jobbery  and  favoritism  to  the  bondholder 

The  other  point  which  Hamilton  felt  it  necessary  to  apologize  for  was 
that  the  government  was  to  take  shares  in  the  Bank.  The  government 
possessed  no  capital  and  the  Treasury  had  no  surplus.  What  right  had  it  to 
take  shares  in  the  Bank?  Hamilton  said:  "The  main  design  of  this  is  to 
enlarge  the  specie  fund  of  the  Bank,  and  to  enable  it  to  give  a  more  early 
extension  to  its  operations."  This  is  unintelligible.  The  government  put 
bills  of  exchange  on  Holland  into  the  Bank  in  payment  for  the  stock;  then  it 
borrowed  the  bills  of  exchange  out  again,  and  gave  its  note  at  five  per  cent, 
for  the  amount.  This  was  called  a  "simultaneous  transaction;  "  a  phrase  of 
ill-omen  for  an  ill-devised  operation.  The  government  had  simply  given  a 
stock  note  and  set  the  example,  which  impecunious  and  bankrupt  individuals 
adopted  and  repeated  during  the  next  fifty  years,  in  hundreds  of  cases,  with 
the  most  disastrous  consequences.  It  was  bound  to  pay  $200,000  annually 
on  this  note,  which,  as  Hamilton  said,  would  "operate  as  an  actual  invest- 
ment of  so  much  specie."  He  added  another  reason  for  this  arrangement, 
which  was  the  real  one :  that  the  government  would  thus  share  in  the  profits 
of  the  institution.  He  had,  however,  well  argued  against  State  banking  for 
profit,  in  the  same  document.*  This  arrangement  was  unnecessary  and 
mischievous.  It  was  right  that  the  government  should  participate  in  the 
profits  of  the  Bank  either  by  a  bonus  or  by  taxes,  but  this  device  put  the 
government  in  the  wrong  on  the  most  fundamental  and  farreaching  difference 


*  See  p.  25. 


FIRST  BANK  OF  THE  UNITED  STATES. 


33 


which  can  exist  in  regard  to  the  conception  and  organization  of  a  bank.  If 
the  stockholders  of  a  bank  are  debtors  to  it  and  not  creditors  of  it,  it  is  a 
swindle.  They  take  something  out  where  they  have  put  nothing  in.  They 
are  not  lending  a  surplus  of  their  own;  they  are  using  an  engine  by  which 
they  can  get  possession  of  other  people's  capital.  They  print  notes  which 
have  no  security  and  make  the  public  use  them  as  money.  They  bear  no 
risk  of  their  own  operations,  but  throw  all  the  risk  on  others  while  taking  all 
the  gain.  The  government  had  no  more  right  to  subscribe  stock  when  it 
possessed  nothing,  and  put  nothing  in,  than  an  individual  would  have  to  do 
the  same  thing. 

The  stock  of  this  Bank  and  four  thousand  shares  more  were  subscribed 
in  two  hours.*  It  went  into  operation  December  \2,  1791.  A  very  active 
speculation  in  the  scrip  sprang  up  as  soon  as  the  first  installment  was  paid, 
and  it  was  run  up  to  a  premium.  This  contributed  largely  to  the  financial 
crisis  in  the  winter  of  1791-2,  "with  distress  for  money  unequaled  in  this 
country,"  A  story  is  told  that  the  son  of  the  president  of  the  Massachusetts 
Bank,  and  two  others,  borrowed  the  funds  of  the  bank  to  such  an  extent  that 
it  stopped  discounting  for  six  or  eight  weeks,  while  they  went  to  New  York 
and  speculated  in  government  paper.  They  sold  out  to  Duer.  The  next' 
day  the  stocks  fell  20  or  30  per  cent.,  and  he  was  ruined.  He  had  high 
credit  and  had  taken  on  deposit  the  savings  of  small  people,  f  He  was 
put  in  jail,  where  he  remained  five  years.  Threats  were  made  of  lynching 
him.t 

The  belief  at  the  time,  and  subsequently,  was  that  no  more  than 
the  specie  part  of  the  first  installment  ever  was  paid  into  the  Bank  in 
specie. 

In  managing  the  relation  of  banks  to  each  other,  Hamilton  set  some  pre- 
cedents which  deserve  careful  attention  on  account  of  the  momentous  con- 
sequences which  afterwards  followed  from  them.  He  naturally  had  a 
tender  feeling  for  the  Bank  of  New  York,  and  one  reason  why  he  opposed 
branches  for  the  national  bank  was  that  he  foresaw  a  collision  of  interests. 
As  soon  as  the  charter  was  passed  he  wrote  to  reassure  the  Bank  of  New 
York,  saying  that  he  had  explicitly  directed  the  Treasurer  not  to  draw  upon 
it  without  special  directions  from  himself.  He  declared  his  intention  in 
the  public  interest  to  protect  that  bank  against  speculators. § 

In  November,  1791,  he  assured  the  cashier  that,  although  it  would  be 
his  duty  to  put  the  public  deposits  in  the  branch,  he  would  precipitate  noth- 
ing, but  would  conduct  the  transfer  so  as  not  to  embarrass  or  disturb  that 
institution.  In  the  commercial  crisis  of  1791-2  he  ordered  the  Bank  of  New 
York  to  buy  government  bonds,  in  order  to  sustain  their  value  and  relieve 
the  money  market.  In  fact  he  followed  the  course  of  the  panic  with  such 
interference  as  he  judged  would  be  useful.     In  May,  1792,  he  encouraged 


•  I  Gibbs;  Adminstration  ot  Washington  and  Adams,  68. 

X  8  Hamilton's  Worlu,  305  ;  Jones ;  New  Vjrl;,  jSg. 


t  2  Tliomas  ;  Reminiscences,  12. 
i  8  Hamilton's  Works,  239. 


M 


A  HISTORY  OF  BANKING. 


the  Bank  of  New  York  to  make  loans  to  manufacturing  companies  on  easy 
terms,  giving  tiie  assurance  that  the  bank  should  suffer  no  diminution  of  its 
pecuniary  facilities  by  so  doing.*  In  March  of  that  year,  the  Bank  of  the 
United  States  and  the  Bank  of  New  York  had  agreed  upon  a  policy  of 
co-operation,  but,  in  1796,  the  president  of  the  Bank  of  the  United  States 
having  directed  the  New  York  branch  to  demand  payment  of  an  amount 
due  from  the  Bank  of  New  York,  the  latter  was  forced  to  contract,  produc- 
ing alarm.  Thereupon  Hamilton  wrote  to  his  successor,  Wolcott,  asking 
him  to  interfere  to  produce  a  mitigation  of  this  order.  He  thinks  that  this 
will  be  good  policy,  the  weakness  of  the  New  York  Bank  being  due  to  its 
loans  to  the  government.  Wolcott  replied  :  "I  will  thank  you  to  inform 
the  president  of  the  New  York  Bank  or  any  other  confidential  person  that 
they  may  rest  assured  of  as  full  and  cordial  assistance  in  any  pressure  of 
their  affairs  as  shall  be  in  my  power.  I  think,  however,  that  they  must 
principally  rely  on  sales  of  stock,  and  in  my  opinion  any  sacrifice  ought  to 
be  preferred  to  a  continuance  of  temporary  expedients."  In  the  same  letter 
he  also  said  :  "These  institutions  have  all  been  mismanaged.  I  look  upon 
them  with  terror.  They  are  at  present  the  curse,  and  1  fear  they  will  prove 
the  ruin  of  the  government.  Immense  operations  depend  on  a  trifiing  capi- 
tal, fluctuating  between  the  coffers  of  the  different  banks."  The  significant 
facts  in  these  proceedings  are:  the  interference  of  the  Secretary  of  the  Treas- 
ury in  the  collision  of  interests  between  different  banks,  and  the  function  of 
mediator  or  arbitrator  which  he  assumes.  His  interference  in  the  money 
market,  although  noticeable,  was  not  nearly  so  important. 

Wolcott  wrote  to  Hamilton  in  1795:  "Banks  are  multiplying  like  mush- 
rooms. The  prices  of  all  our  exports  are  impaired  by  improper  negotiations 
and  unfounded  projects,  so  that  no  foreign  market  will  indemnify  the  ship- 
pers." And  again  :  "It  would  astonish  you  to  know  how  far  the  capital  of 
this  country  has  been  placed  in  the  power  of  France  by  speculations  to  that 
country  and  the  excessive  use  of  credit  during  the  last  season.  If  we  have  a 
good  crop  and  the  ardor  of  speculation  can  be  checked  so  as  to  allow  a  loss 
which  I  know  to  be  inevitable  to  fall  gradually  upon  us,  the  merchants  will 
struggle  through ;  but  if  we  proceed  in  our  present  course  until  a  sudden 
revulsion  takes  place,  the  consequences  may  be  serious."  These  fears  were 
speedily  realized  in  the  financial  crisis  of  1796,  which  was  connected,  no 
doubt,  with  the  financial  crisis  in  Europe  which  produced  suspension  of 
specie  payments  by  the  Bank  of  England. 

Early  in  1796,  before  these  troubles  came  on,  John  Adams  wrote  to  his 
wife,  in  view  of  his  approaching  accession  to  the  presidency,  that  the  paper 
money  of  the  country  was  the  worst  evil  he  saw.f  In  1799  he  declared: 
"  Public  credit  [i.  e,,  general  mercantile  credit,  not  the  credit  of  the  govern- 
ment], can  never  be  steady  and  really  solid  without  a  fixed  medium  of  com- 
merce.   That  we  have  not  such  a  medium,  you  know,  has  been  my  opinion 


l\ 


*  8  Hamilton's  Works,  247. 


t  Letters  to  his  wife,  30a. 


FIRST  BANK  OF  THE  UNITED  STATES. 


J5 


for  several  years.  The  fluctuations  of  our  circulating  medium  have  commit- 
ted greater  depredations  upon  the  property  of  honest  men  than  all  the 
French  piracies.  To  what  greater  lengths  this  evil  may  be  carried  I  know 
not.  The  Massachusetts  Legislature  are  authorizing  a  number  of  new  banks. 
The  cry  is  the  immense  advantage  to  agriculture.  Credit  cannot  be  solid 
when  a  man  is  liable  to  be  paid  a  debt,  contracted  to  any,  by  one-half  the 
value  a  year  hence."*  The  rise  of  a  bank  mania  in  Massachusetts,  to  which 
he  here  alludes,  produced  consequences  which  we  shall  soon  have  to  notice. 

In  1797,  a  federal  tax  was  laid  on  all  notes  of  banks,  not  exceeding  $50, 
of  six  mills  on  a  dollar,  and  lower  rates  on  higher  denominations.  These 
taxes  might  be  commuted  at  one  per  cent,  on  dividends.  In  1798,  an  act  ot 
Congress  made  it  felony  to  counterfeit  notes  of  the  Bank.  In  1807,  passing 
counterfeit  notes  was  included.  This  latter  was  made  necessary  by  a 
decision  that  the  former  law  was  inconsistent  with  itself,  and  void,  so  that 
it  would  not  support  an  indictment  for  knowingly  uttering  as  true  a  forged 
pa  per.  t 

Under  Gallatin's  administration  of  the  Treasury  we  find  one  case  of 
"arbitration  "  between  banks,  and  we  find  proofs  of  Jefferson's  ideas  of  the 
proper  relations  between  those  institutions  and  the  federal  government.  In 
1802,  the  Bank  of  Pennsylvania  applied  to  Gallatin  for  help.  It  fell  one  hun- 
dred thousand  dollars  per  week  in  debt  to  the  Bank  of  the  United  States. 
Upon  this  Gallatin  comments:  "They  have  extended  their  discounts  too 
far.  "I  On  an  application  of  the  Bank  of  Baltimore  for  a  share  of  the  federal 
deposits,  Jefferson  commented  favorably,  because  he  said  that  the  stock  of 
the  Bank  of  the  United  States  was  almost  all  owned  by  foreigners.  §  Jefferson 
wrote  to  Gallatin,  July  12,  1803:  "As  to  the  patronage  of  the  republican 
bank  at  Providence,  I  am  decidedly  in  favor  of  making  all  the  banks  repub- 
lican by  sharing  deposits  amongst  them  in  proportion  to  the  dispositions 
they  show.  If  the  law  now  forbids  it,  we  should  not  permit  another  session 
of  Congress  to  pass  without  amending  it."||  May  3,  1804,  Gallatin  reported 
to  Jefferson  that  there  was  a  great  drain  of  dollars  out  of  the  country. 
"There  are  not  at  present  one  hundred  thousand  dollars  in  Philadelphia, 
New  York  and  Boston  put  together.  More  than  three  millions  of  dollars 
have  been  exported  in  six  months  from  the  vaults  of  the  Bank  of  the  United 
States  alone.  "•[ 

The  banks  which  were  in  existence  at  the  end  of  the  century  were  pay- 
ing from  eight  to  fifteen  per  cent,  dividends.  This  stimulated  a  movement  for 
the  creation  of  more  of  them. 

The  first  bank  mania,  with  inflation  and  collapse,  after  the  introduction 
of  convertible  note  banking,  took  place  in  New  England,  and  the  rest  of  the 
country  came  to  look  on  that  section  as  sunk  in  the  follies  and  vagaries  of 
paper  money.** 

Massachusetts. — In  1799  a  law  was  passed  making  it  unlawful  to  join 


*  a  Gibbs,  343. 

i  Ibid., 


129. 


t4Cranch,   167.  %  1  Gallatin's  Writings,  80.  $  Ibid., 

1  Ibid.,  191.  •♦  BoUman;  Bank  Paragraphs,  56. 


351- 


36 


A  HISTORY  OF  BANKING. 


.)  : 


any  association  to  do  banking  of  any  kind  unless  authorized  by  law.  The 
penalty  was  $1,000;  the  notes  were  void.  All  such  associations  then 
existing  were  to  dissolve  by  March,  1800.  The  period  was  one  of  great 
prosperity  in  New  England,  but  in  1800  we  hear  that,  "the  tide  of  wealth 
which  had  flowed  so  long  has  considerably  ebbed,  and  the  effect  of  this 
change  has  become  visible  in  everything.     Property  ha  n  in  price. 

Real  estates  especially  are  not  worth  so  much  by  20  p^.  .cnt.  as  three 
months  ago."* 

Although  nearly  every  charter  for  a  bank  in  Massachusetts  required  the 
bank  to  report  annually  or  semi-annually,  "few  seem  to  have  paid  any 
attention  to  these  provisions."  A  general  act  of  i8oj  led  to  systematic 
reports.  A  law  of  1799  in  that  State  had  made  it  illegal  to  emit  notes  for  less 
than  $5,  but  in  1805  they  were  allowed  for  $1,  $2,  and  %}.  This  measure 
was  in  obedience  to  a  popular  demand  and  was  to  be  temporary  only. 
Besides  the  branch  of  the  United  States  Bank,  there  were  then  twenty-one 
associations  for  banking  in  Massachusetts,  which  were  privileged  to  issue 
$13  millions.f 

In  the  first  years  of  the  century  there  was  a  great  multiplication  of  country 
banks  in  Massachusetts,  Maine,  and  New  Hampshire.  Their  notes  all 
flowed  into  Boston  and  displaced  the  circulation  of  the  Boston  banks.  A 
double  currency  was  thus  introduced,  one  called  foreign  r  ""ey  or  current 
money,  and  the  other  Boston  money,  differing  by  about  c  r  cent,  which 

was  construed  as  a  premium  on  Boston  money.  The  br.  -ealt  in  these 
currencies,  reserving  a  quarter  of  one  per  cent,  commission.  The  country  issue 
then  became  excessive  and  the  brokers  sent  it  home.  Hence  it  came  about 
that  a  bank  was  profitable  in  proportion  to  its  distance  from  Boston  and  the 
difficulty  of  access  to  it.  The  favorite  locations  became  remote  parts  of 
Maine  and  New  Hampshire.  In  order  to  equalize  and  extend  the  circulatii  n 
of  foreign  bank  notes  the  Boston  Exchange  Office  was  incorporated  in  1804, 
its  capital  consisting  of  such  notes  and  its  business  being  done  with  them. 
It  was  not  very  successful.  The  brokers  sent  home  the  bills  of  the  nearer 
banks  and  the  discount  on  the  currency  continued  to  increase  as  the  bills  of 
the  more  distant  banks  predominated.  Andrew  Dexter,  having  studied  the 
operations  of  the  Exchange  Bank,  undertook  the  control  and  monopoly  of 
the  circulating  medium  of  New  England.  He  bought  up  at  a  great  premium 
nearly  the  whole  stock  of  the  Exchange  Oifice  and  of  several  distant  banks 
in  Maine,  Berkshire,  and  Rhode  Island.  With  these  funds  he  bought  real 
estate  and  built  the  "enormous  pile,  since  destroyed  by  fire,  known  by  the 
name  of  the  Boston  Exchange  Coffee  House."  This  immobilized  his  capital. 
The  discount  on  country  bank  notes  increased  and  the  country  banks  invented 
ingenious  ways  of  defeating  and  delaying  payment. 

In  the  autumn  of  1808  the  Boston  merchants  raised  a  fund  for  the  purpose 
of  sending  home  the  country  notes  for  redemption.     The  discount  was  from 


a 


*  Lodge's  Cabot,  268. 


+  Felt,  a  14. 


FIRST  BANK  OF  THE  UNITED  STATES. 


n 


two  to  five  per  cent.*  This  caused  a  crisis,  and  in  ifiot).  "the  greater  part 
of  the  country  banks  in  Massachusetts,  Maine,  and  New  Hampshire,  having 
any  considerable  amount  of  bills  in  circulation,  stopped  payment.  Some  of 
them  recovered,  but  a  great  number  proved  irredeemably  insolvent.  It 
would  probably  be  a  moderate  estimate  to  put  the  losses  by  the  bank  failures 
of  that  period  at  $i  million,  "t  In  the  following  year,  a  law  of  Massachusetts 
imposed  a  penalty  of  two  per  cent,  per  month  on  any  bank  which  refused  or 
delayed  payment  of  its  notes,  t  A  Boston  firm  writing  to  Matthew  Carey, 
says:  "We  have  heard  that  a  bank  mania  is  raging  in  your  State.  If  this  is 
true  we  wish  your  legislators  could  see  some  of  the  fatal  effects  resulting  from 
a  too  free  incorporation  of  banks  in  this  quarter  of  the  Union,  and  learn  wis- 
dom from  our  misfortune.  "§ 

The  most  famous  case  which  occurred  was  that  of  the  Farmer's  Exchange 
Bank  of  Gloucester,  Rhode  Island.  It  was  incorporated  in  February,  1804, 
with  a  capital  of  $100,000,  payable  in  gold  and  silver,  in  seven  installments 
stretching  over  three  years.  The  directors  paid  the  first  installment  in  specie, 
but  in  a  few  days  borrowed  of  the  bank  the  same  amount  without  security, 
and  gave  their  notes  without  endorsers  for  the  first  five  installments;  on  the 
two  last  they  made  no  paymeii  whatever.  The  shares  were  gradually 
bought  in  with  the  property  of  the  bank.  Each  director  was  allowed  to  take 
$200  in  notes  in  order  to  exchange  the  same  for  specie,  and  the  bills  of  other 
banks,  as  these  could  be  found  in  the  circulation. 

This  became  one  of  the  favorite  devices.  A  grocer  who  was  interested 
in  a  bank,  or  who  was  induced  by  a  commission,  took  a  quantity  of  its  notes 
to  exchange.  He  paid  them  out  .it  every  opportunity  in  "change"  and 
retained  the  notes  of  other  banks  which  he  brought  back  to  the  bank.  This 
provided  that  bank  with  "specie  funds"  without  further  trouble  or  expense. 
Hence  arose  also  a  fraud  in  the  term  "specie  paying"  banks.  Two,  neither 
of  which  had  any  specie,  but  each  of  which  held  a  quantity  of  the  other's 
notes,  became  thereby  "specie  paying;"  because  each  returned  its  stock  of 
notes  of  the  other  as  "specie  funds,"  or  "cash  Items."  Gouge,  Raguet,  and 
other  writers  of  Jackson's  time  refer  to  the  period  before  the  second  war  as 
one  in  which  there  had  been  some  sound,  honorable,  and  high  principled 
banking.  Investigation  does  not  verify  this.  Sometimes  there  was  a  certain 
naivetd  and  simplicity  about  the  way  of  behaving,  but  these  earlier  bankers 
invented  nearly  all  the  later  abuses,  and  they  set  about  the  exploitation  or 
them  with  less  reserve  than  their  successors.  Perhaps  they  and  their  con- 
temporaries had  not  yet  learned  how  mischievous  the  abuses  might  become. 
If  so,  that  is  the  most  which  yet  can  be  said  for  them ;  for  they  did  not  show 
any  greater  scrupulosity  than  their  successors.  The  fact  is  that  what  New 
England  did  in  the  first  decade  of  the  century  is  what  the  Middle  States  did 


*  1 1  Proc.  Mass.  Hist.  Soc.  307. 

t  N.  Appleton ;  Banking  System  of  Massachusetts,  11. 

t  The  validity  of  this  provision  was  disputed  by  the  banlis  but  sustained  in  8  Mass.  444  (i8ia). 

S  Carey's  Letters  to  Seybcrt,  68. 


]m 


M  ( ' 


J8  //  HfSTORY  or  n/tNK/Nd 

111  11)0  sccoiul,  aiul  \\\v  Soulhwcst  III  the  lointli,  aiul  the  Ohio  SUiti-s  in  tlu; 
sixth. 

In  iHoS  Aiiihcw  Dcxlcr  boii^^hl  up  all  the  (tulstaiulliiK  shares  nC  Ihc 
Farnu'is'  I  xih.iii)j;c  Maiik,  K'vinK  r<»f  (licni  his  own  iiotrs  or  iiulcs  which 
wcif  III!'  piopci'ly  of  (he  hank.  Ih-  llicn  put  in  a  new  set  ol  iliri'ilors. 
DiiiiiiK  jainiaiv.  i'^*"!,  he  was  wiilinn  lonslanl  It'llcrs  lioni  Mosloii  to  iiiKt* 
the  lashicr  to  si^n  iiolcs  as  rapidly  as  possible  aiul  send  theiii  to  him  in 
gieal  (jiianlities,  with  eoinplete  secreiy.  lie  also  >^ave  orders  th.il  iiote.s 
should  he  redeemed  only  hy  dralts  on  Doston,  or  with  vexatious  delays. 
When  at  last  the  attention  ot  the  Legislature  was  drawn  to  the  matter, 
Dexter  tiieil  to  persuaile  thetashiet  to  pay  no  heed  to  its  summons.  The 
Committee  of  Investigation  iouiid  in  the  hank  .fK^.^H  in  specie.  The  hooks 
weie  in  such  coniitsioii  that  the  actual  oulstandiiiK  circulation  could  not  he 
detinitely  ascertaineil,  hut  it  was  thought  to  he  .ItsHo.cxx).*  "It  is  impossihio 
for  us  to  |iictu!e  the  ruin  and  distress  that  lollowed,  the  efU'cts  ol  which  arc 
still  remaining.  It  is  saiil,  aiul  we  presume  correctly,  that  in  one  county  of 
this  .Sl.ite  there  were  $I(h»,<hk)  ol  the  hills  of  the  I'armers'  lixchanj^e  Hank  in 
circulation  at  the  time  it  tailed,  aiul  probably  in  the  .State  there  were  $4(X),(kxj 
or  $V)<),<XK),  all  ol  which,  alter  heiiij;  bartered  .it  various  discounts,  became 
a  total  loss  to  the  last  holders,  which,  in  most  instances,  were  the  pctoier 
and  less  intormeil  parts  ol  the  community.  There  is  no  doubt  that  Ihou.s- 
ands  of  I'armers  will  be  ruineil.  and  le.ive  their  families  in  poverty,  in  con.se- 
tjuence  of  the  facility  with  which  they  obtaineil  money  at  the  banks  by 
mortnaniiijj  their  estates,  "f 

It  was  in  the  name  of  the  Boston  lixchan^c  OUke  that  Dexter  first  ap- 
pr«)ached  the  larmers'  lixchaii>i;e  hank,  lie  had  seen  how  the  notes  of  one 
b.ink  ci)uld  be  played  otf  against  those  of  another,  especially  if  th.ey  were  at 
a  distance  from  each  otlu-r.  The  second  bank  with  which  he  was  oper.itiiiK 
was  the  Merkshire  Hank  at  Piltslield.  If  a  bank  issued  its  own  notes  in  very 
HrvAi  nuantities.  tlu-y  would  become  very  abuiul.int  in  the  country  around 
it.  This  would  excite  attention,  and  they  would  he  brouj,'ht  in  for  redem|)- 
tion;  but  if  the  Herkshire  Hank  issued  notes  of  a  Rhode  Islaiul  bank,  ;md 
r/(V  ri'rsii.  and  if  they  were  wiilely  .scattereil,  these  danj^ers  could  be 
averted.  The  Hoston  lixcliaiige  Ollice  in  fact  accomplished  this  on  ;i  large 
scale  for  its  constituents.  It  is  also  noticeable  th.it  amoiij^st  the  notes  which 
Dexter  sent  to  the  farmers'  l:xchan>j[e  Hank,  in  order  to  strenj!;thon  it,  were 
iititis  of  the  Marietta  Hank,  Ohio,  lie  thought  them  quite  .ivailable,  because 
there  wa.s  such  a  demand  lor  remittance  to  Ohio.  We  learn  from  other  facts 
that  the  circulation  of  bank  notes  from  ore  end  of  the  Union  to  the  other 
was,  at  that  time,  wide  and  easy,  far  beyond  what  one  would  have  believed 
possible.  I 


t    " 


^'  l\..pi>rt  of  ilic  I'.oinmiltee  ui\  the  I'armrrs'  l-!xchdtii;i*  Hunk. 
t  lUMtiMi  firm  to  ('airy. 

}S«pa|{t56.     IVxtiT  wntt  to  Aliibaiiw,  wlirri' ho  louiulnl  llic  town  oi  MontKumcry,  and  died  in  poverty  In   i8j8. 
(i  Kagwt's  IU„;:ter,  ij;  ) 


j/h'sr  li/tNK  or  iiir.  iiniiui)  si/irns. 


19 


ivi  In  the 

[•S  oi  llic 
fS  wlii»  li 
ilin'iluis. 

II  In  iii«<' 
tt)  liitii  ill 
h;il  nolt's 
iH  il«'l:iys. 
ic   llllllUT, 

(US.  Tlio 
\\w  hooks 
uUI  no)  l»»' 
impossibU' 
wluili  arc 
■  loiinly  of 
|jrc  Itiiiik  in 

|C$4(K),(K)() 

(s,  bccaim: 
the  poorcM* 
lliat  llioiis- 
I,  in  i(»iist;- 
f  banks  by 

liT  lirst  ap- 
otcs  ol  one 
u'y  were  at 
|is  opcratinK 
)tes  in  vi-ry 
Intry  aronnd 
or  redciup- 
I  bank,  and 
s  foiild   be 
s  on  a  iart^e 
lotos  which 
en  it,  were 
ble,  because 
1  other  facts 
to  tlie  other 
ive  behcved 


povtrly  In  i8j8. 


In  lHi.|  the  New  lin^land  Hank  adopted  the  plan  ol  receiving  the  bjllri  ol 
all  the  lianks  in  New  lin;<land  at  a  discount  varying  accordiiiK  to  distance, 
bill  ill  no  case  exceeding  one  per  cent.,  and  on  condition  of  a  siiKii  icnt  pei- 
inaiieiil  deposit  beiiiK  maintained,  they  were  returned  tf»  the  banks  at  llw 
price  at  which  Ihey  were  boiiKht,  The  bills  ol  b.inks  which  did  not  kcrp  ;i 
deposit  were  sent  home  for  payment.  The  other  banks  competed  with  the 
New  liiiKland  Bank  for  these  depf)sits,  and  thus  diminished  the  <lis(  oiinl. 

In  the  story  of  the  early  M.i.ss.ichiisetts  banks  we  set;  the  first  develop- 
ment (»l  the  ant.iKonism  betwet;n  commercial  batikitiK  and  agricultural  baiik- 
iuK.  In  the  larger  towns  of  that  State  city  industries  were  beKiMiiii);j;, 
They  could  support  b.inks  of  discount  and  deposit  with  slujrt  p;i|)(r.  I'er- 
.sons  who  were  littiriK  '»nl  ships  or  tilling  land  could  not  use  ninety  day  papir. 
Loans  to  farmers  always  had  the  character  of  accoimnodalion  paper  with 
renewals,  iilthoiiKh  a  niort(j;a>J!e  would  «ive  ultimate  security.  The  Hank 
CommissitJiiers  of  Connecticut,  in  1S41,  expressed  the  rtpinion  that  "the 
practice  of  some  banks  to  confine  their  discounts  exclusively  to  business 
p.iper  or  paper  that  is  subject  to  no  renewal,  is  a  ><real  innovation,  ;ind  deiiic, 
to  a  worthy  class  of  borrowers  those  facilities  and  advanLi^es  to  which  they 
are  entitled  in  common  with  those  of  more  various  and  ext(;nded  business," 
True  bank  note  circulation  could  not  be  maintained  by  the  country  banks,  biit 
if  they  could  ^?et  a  dist.uit  circulation  they  could  live  on  an  abuse  of  issue^ 
banking.  The  jealousy  of  the  rural  pr)pul;ition  in  respect  to  b;inks  led  tlieiii 
to  insist  on  inserting  in  bank  charters  a  provision  that  a  certain  fraction  of 
the  capital  should  be  loaned  on  mortj(af,'e  of  land.  We  .li.-ill  presently  see 
the  antaf^onisin,  which  here  arose  between  parts  of  the  .same  .State,  marking 
the  relations  of  parts  of  the  Union. 

We  observe  that  a  bank  was  conceived  of  primarily  as  a  means  of 
creating  wealth,  hvery  one  wanted  a  share  in  its  beneficent  operation.  If 
the  Legislature  created  it,  all  the  people  ought  to  participate  in  its  blessings. 
To  do  justice  to  this  notion  we  must  not  forget  that  the  b.inks  then  existing 
had  been  organized  very  generally  on  stock  notes,  ;ind  if  they  succeeded, 
were  mines  of  wealth  to  their  owners.  A  generation  later,  as  we  shall  see 
below,  people  came  to  say  that  banks  were  a  curse  to  all  agricultural  inter- 
ests and  persons.  We  shall  see  th;it,  in  the  history  of  banks  in  this  country 
it  has  been  a  tjuestion  of  paramount  importance:  Wh.it  is  thi-  utility  r'  b.mks 
to  farmers  and  how  is  it  to  be  realized.^  j-roin  the  standpoi.  of  commercial 
banking  with  ninety  d.iy  paper,  a  loan  to  a  farmer  lor  a  year  with  a  stipulated 
renewal  was  bad  banking,  but,  on  the  other  h.ind,  such  a  loan  could  never 
answer  the  purpose  of  a  farmer.  Repayment  within  a  year  is,  ffjr  him,  vex- 
atious and  impracticable.  He  needs  loans  for  years  or  for  an  unlimited 
period.  Never  until  modern  in.stitutions  of  credit  suited  to  the  necessities  of 
the  case  grew  up  did  this  antagonism  of  facts,  interests,  and  institutions 
pass  away. 

The  incident  of  the  Farmers'  Exchange  Bank  led  the  Legislature  of  Rhode 
Island  to  pass  a  law,  fining  any  ofificcr  of  a  bank  $30  for  every  check,  note, 


40 


A  HISTORY  OF  BANKING. 


ill;  i 


fi  m 


I    Hi  ■ 


or  bill  signed  by  him,  for  a  less  sum  than  $50,  payable  at  any  place  out  of 
the  State.  A  fine  of  $5  was  also  imposed  on  any  one  who  should  pass  a 
note  for  less  than  $5  issued  by  a  bank  out  of  the  State. 

The  banks  of  Rhode  Island  had  a  peculiar  "bank  remedy"  or  "bank 
process "  against  delinquent  debtors,  according  to  which  execution  issued 
directly  without  previous  process  and  finding  of  judgment.  The  bank  pro- 
cess was  abolished  in  1836,  on  the  recommendation  of  a  committee  of  the 
Legislature,  who  found  that  it  was  liable  to  abuse,  and  that  the  remedies 
provided  for  other  people  were  also  sufficient  for  the  banks. 

In  Vermont,  in  1805,  two  bank  acts  were  vetoed,  on  the  ground  that 
banks  demoralize  the  people  by  gambling,  concentrate  wealth  in  the  hands 
of  the  few,  and  are  useless  to  the  many  since  they  give  credit  only  to  the 
rich.  Here  now  we  meet  with  the  first  great  State  paper  money  machine. 
It  was  first  proposed  in  1805,  and  rejected  ;  but  November  10,  1806,  it  was 
adopted.  It  was  to  be  called  the  Vermont  State  Bank ;  to  have  two 
branches  ;  to  be  the  property  or  the  State  ;  to  be  controlled  by  the  State, 
and  all  the  profits  to  go  to  the  State.  The  directors  were  to  be  chosen  by 
the  Legislature,  six  for  each  branch.  Each  branch  had  a  great  degree  of 
independent  life  and  action.  The  directors  of  each  branch  were  to  borrow 
specie  from  time  to  time  for  that  branch  and  on  its  credit,  not  issuing  more 
notes  than  the  actual  specie  on  hand  until  that  amounted  to  $25,000.  After 
that  they  might  put  in  circulation  three  times  the  amount  of  specie,  provided 
that  the  last  should  never  exceed  $300,000.  Five  hundred  dollars  were 
appropriated  to  procure  plates  and  paper,  and  the  Legislature  might  appro- 
priate money  in  the  Treasury  to  fill  the  coffers  of  the  bank.  The  directors 
were  authorized  to  purchase,  hold  and  transfer  real  or  personal  property,  as 
it  might  be  necessary  to  protect  the  interests  of  the  State  in  the  proposed 
operations.*  The  next  year  the  directors  reported  that,  on  September  30, 
1807,  there  was  due  the  bank,  $139,757.  The  notes  were  of  the  denomina- 
tion of  fifty  cents,  seventy-five  cents,  one  dollar,  a  dollar  and  a  quarter,  a 
dollar  and  a  half,  a  dollar  and  seventy-five  cents,  two  dollars,  and  three  dol- 
lars. These  had  been  printed  and  issued  on  mortgage  loans.  The  institu- 
tion was  reported  prosperous  and  successful,  and  in  order  that  the  State 
might  win  the  expected  profits  it  made  a  monopoly  of  its  bank,  just  like  the 
other  banks,  by  enacting  that  no  notes  issued  by  any  bank  out  of  the  State 
should  be  brought  into  the  State  to  be  loaned  there. 

The  next  year  the  trouble  begins.  It  is  charged  that  noteholders  cannot 
get  notes  redeemed  without  paying  a  discount  of  one  per  cent,  or  two  per  cent, 
or  taking  a  draft  on  a  distant  bank,  payable  after  thirty  or  sixty  days.  The 
defense  was  that  this  rule  was  made  only  for  defense  against  speculators  or 
persons  unfriendly  to  the  bank,  and  it  seems  to  have  been  held  good.  These, 
however,  were  the  familiar  tricks  of  banks  formed  by  selfish  private  capital- 
ists.    The  notes  in  circulation  were  now  over  half  a  million ;  the  State  was 

*  Session  Laws,  iSo6,  c.  no. 


FIRST  BANK  OF  THE  UNITED  STATES. 


41 


creditor  of  the  bank  for  about  $80,000,  and  the  latter  had  cash  assets,  $187,000. 
In  1809,  the  banking  crisis  having  taken  place  in  the  adjacent  States,  the 
Governor  declared  that  although  he  had  not  favored  the  State  Bank  originally, 
he  thought  that  the  people,  but  for  it,  would  now  have  been  in  possession 
of  the  worthless  paper  of  the  broken  banks.  The  House  replied  that  they 
valued  the  institution  as  a  source  of  revenue;  considered  "the  final  redemp- 
tion of  the  bills  already  guaranteed  by  the  honor  and  wealth  of  the  State," 
and  that  they  were  ready  to  do  anything  to  remove  real  or  imaginary 
obstacles  to  the  prosperity  of  the  mstitution.  The  accounts  of  the  bank  now 
showed  a  net  gain  to  the  State  of  $22,412.  A  committee  of  the  House 
thought  that  all  the  loans  were  good,  each  note  having  two  or  more 
endorsers;  but  they  are  obliged  to  add:  "Although  causes  unforeseen  to 
the  president  and  directors  have  produced  a  temporary  suspension  of  punct- 
ual payment  at  the  bank,  yet  it  does  not  appear  that  this  state  of  things  will 
long  continue."  It  is  also  very  significant  that  two  or  three  laws  were 
passed  at  the  same  session  to  enforce  the  collection  of  debts  due  the  bank. 
A  summary  process  of  execution,  like  the  Rhode  Island  "bank  process,"* 
was  provided.  The  next  year  it  is  enacted  that  the  directors  shall  give 
a  list  of  all  who  are  in  arrears  to  the  bank,  annually  to  the  Legislature ;  and 
a  similar  list  of  delinquents  is  to  be  published  in  the  newspapers.  In  181 1 
the  legislative  committee  hoped  that  if  the  bills  were  called  in,  as  they 
had  been  during  the  last  year,  very  few  of  them  would,  in  another  year, 
remain  in  circulation.  They  reccmmended  the  appointment  of  a  com- 
mittee with  power  to  make  a  full  examination  of  the  bank  during  the 
recess.  No  notes  were  to  be  put  in  circulation  until  the  specie  equalled  half 
the  debts;  and  the  loans  were  to  be  called  in  as  rapidly  as  possible.  A 
year  later  the  report  showed  the  bank  in  possession  of  lands  taken  on 
execution  to  the  amount  of  $1 1,062;  the  loans  outstanding  were  $95,418, 
of  which  half  were  in  suit.  The  Bank  held  notes  of  broken  banks,  $3,052; 
the  notes  in  circulation  were  $78,431  ;  a  balance  unaccounted  for  was 
$13,680. 

In  18 12,  laws  were  passed  to  wind  up  the  institution.  The  State 
Treasurer  was  to  give  to  noteholders  treasury  notes  payable,  half  in  one 
year,  and  half  in  two  years,  with  interest  at  six  per  cent.  In  1822,  the  State 
Bank  owned  lands  taken  on  execution  to  the  value  of  $21,685.  The  State 
redeemed  all  the  outstanding  obligations  by  receiving  them  for  taxes,  and  in 
1825,  distributed  the  avails  of  the  property  which  it  had  received  from  the 
bank  amongst  the  towns  for  schools.  The  affairs  of  the  bank  were  settled 
up  in  1845.  The  loss  by  it  never  could  be  exactly  ascertained.  A  tax  of 
one  cent  per  acre  was  levied  in  18 12  in  order  to  retire  the  notes.  It 
brought  in  $100,000  of  them.  There  were  in  the  State  Treasury  $130,000 
received  otherwise.  The  assets  of  the  bank  produced  about  $30,000,  leaving 
the  loss  about  $200,000.  f     One  Durkee  of  Boston,  who  demanded  specie  of 


*  See  p.  40. 


t  G.  B.  Reed  ;  Banking  in  Vermont. 


■  : 

i 

:     ■'■* 


!; 


i:|; 


i' 


!'' 


(i 


I 


I    ■ 


I 


t 


.a 


J 


4a 


//  HISTORY  OF  BANKING. 


this  bank,  was  arrested,  in  1808,  and  an  indictment  drawn  against  him;  but 
the  bill  was  not  found.  * 

Connecticut. — The  bonds  of  the  United  States  owned  by  the  State  having 
been  paid,  in  1803,  the  Legislature  voted  to  put  the  amount  in  banks  which 
would  receive  it  as  stock-deposit;  that  is;  it  was  to  be  deposited,  but  to  get 
the  rate  of  dividend  instead  of  the  rate  of  interest,  be  withdrawable,  but  not 
transferable  as  stock. 

The  shareholders  of  the  Hartford  Bank  voted,  in  1806,  that  they  would 
receive  subscriptions  from  religious  societies  or  school  corporations  on  sim- 
ilar terms  to  those  here  provided  for  the  State.  The  following  year  the 
Legislature  authorized  an  increase  of  the  capital  stock  of  this  bank  to  one 
million  dollars,  with  the  provision  that  "the  bank  should  be  open  at  all 
times  to  subscriptions  of  shares  from  the  funds  of  schools,  ecclesiastical 
societies,  or  other  incorporations  for  charitable  purposes  in  the  State,  with- 
out any  advance  thereon,  and  with  the  right,  on  the  part  of  the  privileged 
associations,  to  withdraw  their  moneys  on  giving  six  months'  notice. 
Whenever  the  holdings  of  any  favored  society  reached  $50,000,  the  full 
capital  of  one  million  dollars  having  been  otherv/ise  filled,  it  was  entitled 
at  the  annual  meetings  to  the  choice  of  a  director.  These  shares  were  not 
transferable."  In  1809  the  bank  petitioned  the  Legislature  to  relieve  it  from 
the  necessity  of  receiving  these  subscriptions.  In  1816  it  had  $212,800  of 
such  non-transferable  shares,  f  This  arrangement  became  customary  in 
Connecticut,  and  was  introduced  into  nearly  all  the  bank  charters  which 
were  granted  before  the  civil  war.  The  Connecticut  charters,  also,  as  a 
rule,  did  not  run  for  a  prescribed  length  of  time,  but  they  contained  a  clause 
allowing  the  Legislature  to  amend  or  repeal  them. 

New  York. — In  1799  the  Manhattan  Water  Company  was  chartered  in 
New  York  City  with  a  capital  of  two  million  dollars,  and  with  power  to  use 
any  part  of  the  capital  not  required  for  water- works  in  any  way  "  not  incon- 
sistent with  the  laws  and  Constitution  of  the  United  States  or  of  the  State  of 
New  York."  Aaron  Burr  is  mentioned  as  the  inventor  and  chief  promoter  of 
this  charter.  When  the  bill  came  before  the  Council  of  Revision,  the  Chief 
Justice  objected  that,  under  the  clause  quoted,  the  corporation  might  engage 
in  trade.  No  one  seems  to  have  noticed  that  the  corporation  might  engage 
in  banking,  which  was  the  real  intention.  In  excuse  of  this  subterfuge  it 
was  alleged  that  no  charter  for  a  republican  bank  could  then  have  been  ob- 
tained. The  charter  was  perpetual,  but  in  1808  the  company  was  allowed 
to  sell  or  lease  its  water-works  to  the  city,  and  to  use  all  its  capital  for  bank- 
ing. The  charter  was  to  expire  thirty  years  from  the  date  of  such  sale  or 
lease.  The  State  might  subscribe  for  one  thousand  shares  of  the  stock,  and 
the  Recorder  of  the  City  of  New  York  was  made  a  director  ex  officio.X  The 
right  of  this  company  to  do  a  banking  business  was  tried  and  affirmed  by 
the  Supreme  Court  of  the  State.§ 


♦  Treasury  Report,  January  ?,  1838,  p.  1 1 1. 

X  Treasury  Report,  March  3,  1841. 


t  Woodward  :  Hartford  Bank,  86. 
$9  Wendell,  351. 


FIRST  BANK  OF  THE  UNITED  STATES. 


43 


The  next  measure  of  this  kind  was  the  charter  of  the  New  York  State 
Bank  at  Albany,  which  was  petitioned  for  on  the  express  ground  that  the 
bank  already  existing  at  Albany  was  federalist.  This  republican  bank  petit- 
ioned for  an  exclusive  grant  of  the  salt  springs  for  sixty  years.  This  request 
was  not  granted,  but  Hammond*  gives  a  description  of  the  lobbying  devices 
by  which  the  charter  was  carried.  "The  company,  before  their  petition 
was  presented,  had  agreed  on  a  dividend  of  stock  between  themselves,  and 
reserved  the  surplus  to  be  distributed  among  the  members  of  the  Legislature. 
It  appears  from  the  affidavit  of  Luther  Rich,  a  member  from  the  county  of 
Otsego,  and  several  other  affidavits,  that  assurances  were  given  that  those 
members  who  voted  for  the  bill  should  have  stock,  with  a  further  assurance 
that  the  stock  would  be  above  par."  A  modified  statement  in  regard  to  this, 
intended  to  excuse  it,  is  to  the  effect  "  that  the  applicants  founded  their  claim 
to  a  charter  upon  the  ground  that  it  should  be  a  republican  bank,  and  with 
a  view,  as  was  pretended,  to  insure  it  that  character,  they  agreed  that  each 
republican  member  should  be  entitled  to  subscribe  for  a  given  number  of 
shares,  and  that  this  privilege  was  secured  to  every  republican  member, 
whether  he  voted  for  or  against  the  bill."t 

In  1804,  two  unincorporated  partnerships  doing  a  banking  business, 
one  in  New  York  City  and  the  other  in  Albany,  tried  to  get  charters,  but 
the  Legislature  passed  instead  a  restraining  law  forbidding  all  unincorporated 
companies  from  banking,  and  compelling  these  companies  to  go  into  liqui- 
dation. As  Hammond  says,  this  law  established  a  monopoly  of  the  issue  of 
notes  in  the  existing  banks.  In  the  following  year  the  Merchants'  Bank, 
one  of  the  above-mentioned  companies,  renewed  their  application  for  a 
charter.  They  were  opposed  by  the  persons  interested  in  the  banks  already 
chartered,  some  of  whom,  as  DeWitt  Clinton,  John  Taylor,  and  Judge  Spen- 
cer, were  among  the  most  powerful  politicians  in  the  State.  One  of  the 
strongest  grounds  of  opposition  which  they  openly  alleged  was  that  "the 
granting  of  the  application  would  be  injurious  to  the  republican  party.'' 
The  petitioners  were  denounced  as  federalists  and  tories.  They  thereupon 
had  recourse  to  lobbying  and  bribery.  The  whole  affair  constituted  a  great 
political  scandal. 

The  charter  of  the  Bank  of  America,  in  1812,  was  an  occasion  of  bribery 
and  corruption.  John  Martin,  a  preacher  and  sub-agent  of  the  bank,  was 
convicted  of  attempting  to  bribe  members  of  the  Legislature,  and  was  sen- 
tenced to  confinement  in  the  State  prison.  There  was  a  Legislative  investi- 
gation and  a  great  political  scandal.  J  In  April,  18 15,  certain  bank  charters 
were  extended  until  June,  1832.  Among  them  was  that  of  the  Bank  of 
New  York.  Certain  colleges  were  allowed  to  subscribe  a  specified  amount 
of  stock  in  these  banks,  at  the  original  price.  The  trustees  of  Hamilton 
College  sold  to  the  Bank  of  New  York  their  right  of  subscription  at  $126  per 
share. 


•  I  History  of  Political  Parties  in  New  Yorl«,  319. 


t  I  Hammond,  329. 


X  I  Hammond,  335. 


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44 


//  HISTORY  OF  BANKING. 


Pennsylvania. — The  Bank  of  Pennsylvania  was  incorporated  March  30, 
'793'  for  twenty  years.  Its  charter  was  renewed  in  1810  for  twenty  years  lon- 
ger. At  one  time  it  had  four  branches,  but  they  were  not  all  maintained.  In 
1796,  the  State  obtained  from  this  bank,  as  dividends  on  the  shares  owned 
by  it,  about  $100,000  per  annum,  which  paid  nearly  all  the  State  expenses. 

In  1796,  a  defiilcation  was  discovered  in  this  bank,  amounting  to 
$m,ooo,  and  overdrafts  for  $100,000  more.  This  was  a  republican  bank, 
some  of  the  leading  republican  politicians  of  Pennsylvania  being  in  control 
of  it.  As  all  banks  in  this  period  had  a  political  character,  their  doings  and 
fortunes  were  discussed  in  the  partisan  newspapers  just  as  the  personal  qual- 
ifications of  candidates  were  discussed.*  In  the  financial  distress  of  1796, 
Madison  thought  that  the  banks  were  powerful  to  persuade  people  to  sign 
petitions  in  favor  of  Jay's  treaty,  on  account  of  the  general  dependence  on 
bank  accommodation.! 

The  Philadelphia  Bank  was  chartered  March  5,  1804,  having  previously 
been  in  operation  as  a  partnership.  Its  first  period  was  ten  years  ;  renewed 
in  1806  for  ten  more  ;  in  1809  it  was  authorized  to  institute  branches,  of 
which  it  established  four,  but  not  all  were  maintained.  At  this  time  the 
farmers  had  come  to  believe  that  the  prosperity  of  cities  was  largely  due  to 
banks.  In  18 10,  the  Farmers'  Bank  was  established  in  the  county  of  Lan- 
caster, and  others  in  other  parts  of  the  State.  March  19,  1810,  unincorpo- 
rated associations  were  forbidden  to  issue  notes  ;  but  they  continued  to  do 
so,  and  circulating  notes  were  emitted  by  bridge  and  turnpike  companies. 
The  Farmers'  Bank  of  Lancaster  made  such  large  issues  that  it  paid  dividends 
of  more  than  12  per  cent,  per  annum.  This  greatly  stimulated  the  desire 
for  banks. 

In  1810,  the  State  of  Pennsylvania  owned  $1  million  in  the  Bank  of 
Pennsylvania,  $523,300  in  the  Bank  of  Philadelphia,  and  $75,000  in  the 
Farmers'  Bank,  which  had  just  been  chartered.  It  also  had  shares  in  the 
Mechanics'  Bank.  In  1810  it  subscribed  $396,920  to  the  Bank  of  Pennsyl- 
vania, whose  capital  was  then  raised  to  $2.5  millions.  J  Perhaps  the  most 
influential  publication  on  financial  matters  during  this  period  was  Blodgett's 
Economica,  1805.  It  favored  an  increase  in  banks,  the  use  of  public  secur- 
ities as  money,  land  security  for  bank  notes,  etc. 

The  Farmers'  Bank  of  Delaware  was  chartered  February  3,  1807,  with  a 
capital  of  $500,000,  of  which  the  State  took  one-fifth.  It  was  to  be  the  State 
bank,  but  was  free  from  fantastic  features. 

Virginia. — The  Bank  of  Virginia  was  incorporated  January  30,  1804,  to 
last  until  18 18.  It  was  to  have  $1.5  millions  capital,  of  which  the  State  sub- 
scribed $300,000,  borrowing  that  amount  from  the  bank  at  four  per  cent.  The 
lowest  denomination  of  notes  was  $5.  In  the  following  year  it  was  made  un- 
lawful to  pass  a  note  of  an  unchartered  bank.     The  next  bank  chartered  by 


•  S«  Calendar,  American  Annual  Register  for  1796,  and,  The  Prospect  Before  Us. 
+  Madison  to  Jefferson,  April  a),  1796. 
X  Carey  ;  Letters  to  Seylxrt,  28. 


FIRST  BANK  OF  THE  UNITED  STATES. 


45 


that  State  was  the  Farmers'  Bank  of  Virginia,  incorporated  February  \},  1812, 
with  a  capital  of  $2  millions.  Of  the  shares  3,334  were  reserved  for  the 
State,  if  it  should  choose  to  take  them.  It  was  to  last  until  1827  and  have 
four  branches.  It  might  not  own  more  than  two  and  two-third  times  its 
capital,  nor  owe  more  than  three  times  its  capital  besides  deposits,  unless 
authorized  by  the  State.  By  a  subsequent  law  it  was  allowed  for  two  years 
to  make  loans  to  the  United  States,  in  view  of  the  impending  war.  It  was 
forbidden  to  buy  any  stock  but  its  own. 

The  banking  history  of  North  Carolina  begins  with  the  Mutual  Fire 
Insurance  Company,  incorporated  in  1803,  which  appears  to  have  issued 
notes,  although  this  is  not  certain.  In  the  following  year  the  Newbern 
Marine  Insurance  Company  was  incorporated,  of  which  the  same  may  be 
said.  The  president  and  directors  were  authorized  to  "  direct  the  issuing  of 
policies,  notes,  and  all  and  every  instrument  in  writing  that  may  be  necessary 
and  proper  in  the  transaction  of  the  affairs  of  the  company."  In  the  same 
act  a  bank  was  established  at  Newbern,  with  a  capital  of  $200,000,  to  last 
until  1820;  $50,000  to  be  raised  at  once;  the  debts,  exclusive  of  deposits, 
never  to  exceed  three  times  the  capital.  In  the  earlier  part  of  the  century 
this  ratio  was  the  usual  one  in  the  southern  States.  The  State  reserved  the 
right  to  subscribe  $25,000.  If  it  did  so,  the  note  issue  might  be  increased  in 
proportion.  In  the  same  year  the  Bank  of  Cape  Fear  was  established  at 
Wilmington,  as  was  said,  on  account  of  increasing  population  and  commerce, 
to  last  until  1820;  capital,  $250,000.  The  State  might  subscribe,  within  three 
years,  $25,000.  This  bank  might  become  a  branch  of  the  Bank  of  the  State, 
if  one  should  be  founded. 

A  legislative  Committee  of  Investigation,  in  1828-9,  reported:  "It  is  in 
evidence  to  the  undersigned  that  soon  after  they  [these  two  banks]  went 
into  operation,  they  contrived  to  get  possession  of  nearly  all  the  paper  money 
which  had  been  issued  on  the  faith  of  the  State,  which,  being  at  the  time  a 
legal  tender,  enabled  them  to  evade  demands  for  specie,  which  they  did  by 
thrusting  this  ragged  paper  at  those  who  presented  their  notes  for  specie." 
In  1814,  the  two  banks  were  authorized  to  increase  their  capital  to  $800,000 
each;  which  increase,  this  same  committee  said,  was  taken  in  the  stock 
notes  of  f;ivored  individuals.* 

The  State  Bank  of  North  Carolina  was  first  incorporated  in  1805.  It  was 
repealed  in  the  following  year,  and  is  therefore  important  only  as  showing 
the  trend  of  ideas  at  the  time.  The  most  peculiar  provision  was  that  the 
bank  might  open  an  account  with  any  farmer,  mechanic  or  manufacturer, 
for  any  sum  between  $100  and  $1,000,  on  which  he  might  draw  or  deposit 
not  less  than  $50  at  a  time,  paying  interest  on  debit  balances  and  receiving 
interest  on  credit  balances.  He  must  give  security  of  land  or  other  property 
satisfactory  to  the  bank,  and  not  over  one-fifth  of  the  capital  of  any  bank  or 
branch  might  be  in  these  accounts  at  one  time. 


*  Raguet ;  Currency  and  Banking,  1 1 3. 


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46 


/*  HISTORY  OF  BANKING. 


In  1807  the  Treasurer  was  authorized  to  subscribe  for  the  shares  which 
had  been  reserved  for  the  State  in  the  Cape  Fear  and  Newbern  Banks,  paying 
in  three  annual  installments,  with  four  per  cent,  interest.  After  paying  the  last 
Installment,  he  might  borrow  the  same  amount  from  each  bank  "until  the 
dividends  received  be  sufficient  to  pay  off  the  sum  borrowed."  A  law  of 
1809  seems  to  show  dissatisfaction  with  the  Banks  of  Newbern  and  Cape 
Fear.  As  they  were  forbidden  to  issue  notes  under  $1,  it  must  be  inferred 
that  they  had  done  so.  The  Governor  was  ordered  to  appoint  State  directors, 
according  to  the  power  reserved  in  the  charters,  in  virtue  of  the  State  sub- 
scription. Annual  reports  were  to  be  made  of  the  outstanding  circulation. 
If  notes  were  issued  beyond  the  lawful  limit,  the  charters  were  to  be  forfeited. 
The  banks  were  not  to  issue  notes  on  account  of  their  deposits  beyond  the 
minimum  amount  of  them  in  the  previous  year.  In  the  same  year  jQ'y  penalty 
was  imposed  for  passing  any  note  under  10  shillings,  because,  as  the 
preamble  states,  "the  circulation  of  promisory  notes  or  due-bills,  by  individ- 
uals, for  small  sums,  has  become  so  general  in  some  parts  of  the  State  as  to 
be  very  inconvenient  and  injurious  to  travellers  and  others." 

At  the  following  session,  it  is  ordered  that  the  banks  be  proceeded 
against  for  the  tax  laid  on  them  in  1809,  as  delinquent  sheriffs  are  proceeded 
against,  and  the  State  directors  are  ordered  to  examine  the  cash  in  the 
vaults  of  the  banks  as  often  as  they  think  proper,  and  to  report  to  the  Legis- 
lature annually,  whether  the  published  statements  are  correct. 

In  1 8 10  it  was  enacted  that  a  bank  should  be  established  "in  the  State." 
It  was  to  have  $1.6  millions  capital,  of  which  the  State  might  subscribe 
$250,000 ;  three-fourths  of  the  subscriptions  were  to  be  in  gold  and  silver, 
and  one-fourth  in  the  paper  currency  emitted  by  the  State  in  1783  and  1785, 
which  was  not  afterwards  to  be  a  tender  either  to  or  from  the  bank.  All 
judgments  for  and  against  the  bank  were  to  be  in  gold  and  silver.  The 
State  dividends  were  to  go  to  redeem  the  paper  currency.  The  State  was 
to  pay  its  subscriptions  in  United  States  stocks  or  in  specie.  There  were  to 
be  six  branches;  it  was  to  last  until  1830,  and  no  other  bank  was  to  be 
chartered  during  that  time.  It  seemed  to  be  hoped  that  it  would  absorb  the 
two  existing  banks,  for  their  stockholders  were  allowed  a  priority  in  sub- 
scribing to  the  stock  of  the  Bank  of  the  State.  They  did  not  avail  them- 
selves of  it.     The  State  Bank  was  to  issue  no  notes  under  $1. 

The  subscriptions  to  this  bank  disappointed  expectations,  and  the  paper 
currency  could  not  be  retired.  Accordingly  at  the  next  session  greater 
inducements  were  offered ;  four  per  cent,  might  be  reserved  from  the  dividends 
due  to  the  State,  and  the  charter,  with  monopoly,  was  extended  to  1835, 
if  the  bank  would  redeem  the  State  paper  by  18 17,  giving  either  its  own 
notes  or  specie,  at  the  option  of  the  holder,  and  at  the  rate  of  $1  for  10  shil- 
lings. When  this  was  accomplished  the  Governor  was  to  make  proclama- 
tion that  the  State  paper  was  no  longer  a  tender,  and  it  was  to  cease  to  be 
such  except  to  the  bank  ;  but  if  the  funds  did  not  prove  sufficient  to  redeem  it 
all  before  the  bank  expired,  it  was  to  be  once  more  a  good  tender.    Dividends 


FIRST  BANK  OF  THE  UNITED  STATES. 


47 


accruing  to  the  State  were  to  be  appropriated  to  pav  the  notes  of  the  State 
held  by  the  bank.  In  the  loose  and  inconsistent  wording  of  the  clauses 
about  this  State  paper  money,  we  can  see  the  play  of  opposing  factions  in 
the  Legislature,  which  interjected  amendments  to  preserve  the  State  paper 
currency,  or  guard  it  against  what  was  considered  invidious  action.  This 
bank  was  not  to  be  liable  to  taxation. 

The  attempt  to  retire  the  State  paper  proved  vain,  and  similar  stipulations 
were  repeated  three  years  later.* 

South  Carolina. — By  a  law  of  December  21,  1799,  it  was  peremptorily 
forbidden,  under  a  fine  of  $10,000,  to  issue  and  re-issue  bank  notes  founded 
on  the  paper  currency  of  the  State. 

The  Bank  of  South  Carolina  and  the  State  Bank  were  chartered  December 
19,  1801,  both  being  already  in  existence  as  partnership  associations.  They 
were  chartered  until  1823,  the  capital  being  undefined,  the  former  being 
charged  to  pay,  as  a  preliminary,  into  the  State  Treasury  $is,ooo.  The 
State  might  subscribe  $300,000  to  the  State  Bank  in  six  per  cent,  bonds, 
which  were  not  to  be  sold  by  the  bank  unless  in  the  last  necessity,  upon  the 
consent  of  the  Comptroller;  and  the  bank  was  not  to  have  the  interest  on 
these  bonds.  Three  directors  were  to  be  appointed  by  the  Legislature. 
The  State  Bank  refused  to  accept  this  charter,  and  a  new  one  was  enacted 
December  18,  1802,  the  capital  to  be  $800,000,  of  which  the  State  might 
subscribe  $300,000  in  certificates  of  indebtedness,  at  six  per  cent.,  saleable, 
and  the  interest  paid  quarterly;  the  bank  to  be  free  of  taxes;  to  have  the 
public  deposits;  to  issue  no  note  under  $5  (which  is  enacted  as  to  all  banks), 
and  to  discount  the  Comptroller's  warrants  at  seven  per  cent,  for  not  more 
than  $140,000,  in  order  to  retire  the  State  paper  money. 

The  State  Bank  at  Charleston  and  the  Manhattan  at  New  York  wanted 
to  make  an  arrangement  to  redeem  each  other's  post  notes,  but  the  Legisla- 
ture of  South  Carolina  forbade  the  former  bank  to  give  credit  to  any  bank 
outside  of  the  State.  The  terms  were  so  wide  that  the  prohibition  pre- 
vented the  State  Bank  from  becoming  a  federal  deposit  bank.f 

The  Union  Bank  of  South  Carolina  was  chartered  December  20,  1810,  but 
seems  to  have  been  previously  in  existence.  Langdon  Cheves  was  an  incor- 
porator. The  capital  is  not  fixed.  Limit  of  property,  $3  millions;  duration, 
twenty-one  years;  bonus,  $20,000;  notes  receivable  by  the  State.  On  the 
same  day  the  Planters'  and  Mechanics'  Bank  was  chartered,  with  branches, 
until  1832;  capital  $1  million;  limit  of  property,  $3  millions;  not  to  be 
taxed;  to  give  the  State  800  shares,  at  $25  each,  which  was  the  par  amount. 
By  an  amendment,  the  following  year,  this  bank  and  the  Union  Bank 
were  allowed  to  deal  in  exchange.  E.  S.  Thomas  tells  us  in  his  "Remin- 
iscences," that  he  was  piqued  because  the  State  Bank  threw  out  his  notes, 
in  1810,  and  so  he  got  up  the  Planters'  and  Mechanics'  Bank.  He  sub- 
scribed as  attorney  for  a  great  number  of  shares  and  sold  them  for  double  ; 
that  is,  no  doubt,  on  the  first  installment  paid. 


*  See  page  85. 


t  2  Folio  Finance,  519. 


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48 


//  HISTORY  OF  BANKING. 


The  first  bank  founded  in  Georgia  was  the  Planters'  Bank,  December  5, 
1807,  with  a  capital  of  $1  million,  increasable  to  $3  millions,  but  to 
begin  when  $300,000  were  paid  in  in  gold  and  silver.  The  president  and 
directors  were  to  have  no  favors  over  others  in  respect  to  loans.  December 
19,  1810,  this  charter  was  repealed.  Apparently  no  action  ever  was  taken 
under  it,  because  the  required  amount  of  capital  was  never  subscribed.  A 
new  charter  was  now  enacted,  the  capital  being  $1  million,  and  1,000 
shares  being  reserved  for  the  State  until  January  i,  181 2.  It  was  to 
last  until  1840.  At  the  following  session,  however,  another  law  shows  that 
subscriptions  had  not  been  obtained;  for  the  old  subscribers  were  all  re- 
leased, and  it  was  provided  that  it  might  begin  when  $30,000  were  paid  in 
in  specie.  December  6,  1810,  the  Bank  of  Augusta,  which  already  existed 
as  a  free  association,  was  chartered  until  1830.  The  capital  was  $300,000, 
increasable  to  $600,000;  the  State  might  take  $50,000  of  this  at  any  time 
before  January  1,  1812,  and  if  the  capital  was  increased  the  State  reserved 
the  right  to  take  one-sixth  of  the  increase.  A  year  later  the  Governor  was 
directed  to  subscribe  the  amount  reserved. 

We  may  now  gather  together  such  meagre  information  as  can  be  obtained 
about  the  history  of  the  first  Bank  of  the  United  States. 

In  1804,  it  was  authorized  "to  establish  offices  of  discount  and  deposit  in 
any  part  of  the  territories  or  dependencies  of  the  United  States."  This  is  the 
act  under  which  the  branch  at  New  Orleans  was  established.  It  was  signed 
by  Jefferson  under  the  persuasion  of  Gallatin,  and  was  afterwards  held  by 
the  friends  of  the  Bank  to  be  a  waiver,  by  Jefferson  and  his  adherents,  of 
their  scruples  about  the  constitutionality  of  the  Bank. 

In  1805,  Georgia  passed  a  law  to  tax  the  Bank.  It  refused  to  pay.  The 
State  officers  entered  the  Bank  and  seized  two  boxes  of  silver  worth  $2,004. 
The  bank  brought  an  action  for  trespass  in  the  Circuit  Court  of  the  United 
States  for  the  District  of  Georgia,  where  the  decision  was  for  the  defendant 
on  a  demurrer.  On  appeal  to  the  Supreme  Court  of  the  United  States  the 
case  became  involved  in  technicalities.*  Georgia  desisted  from  the  attempt 
to  tax  the  Bank  until  it  should  be  decided  whether  it  was  to  be  rechartered. 

The  charter  of  the  Bank  was  to  expire  March  4,  181 1.  As  this  time 
approached,  a  loud  and  somewhat  angry  discussion  was  raised  over  the 
question  of  renewing  it.  When  the  question  of  founding  the  New  Orleans 
branch  was  pending,  Gallatin  was  led  to  make  a  statement  of  the  advantages 
of  the  Bank  to  the  Federal  Treasury.  They  were :  safe  deposit  of  the  public 
money;  prompt  transmission  of  the  same  from  one  end  of  the  Union  to  the 
other;  and  facility  in  the  collection  of  the  revenue.f  March  2,  1809,  he 
made  an  elaborate  and  very  favorable  report  on  the  Bank,  in  which  he 
endeavored  to  meet  the  current  objections.  He  was  very  much  afraid  of  the 
financial  effects  of  the  multiplication  of  small  banks.  He  gave  a  statement 
of  the  operations  of  the  Bank  in  round  numbers,  which  was  intended  to 


*  5  Cranch,  6i,  (1809). 


t  I  Gallatin's  Writingr.,  171. 


%^f 


F/RST  BANK  OF  THE  UN/TED  STATES. 


49 


show  what  was  the  general  magnitude  and  proportion  of  the  different  fac- 
tors in  its  operations.  We  possess  but  one  other  statement  of  the  affairs  of 
this  Banli.  According  to  its  charter,  it  was  bound  to  report  to  the  Secretary 
of  the  Treasury,  at  his  demand,  not  oftener  than  weeitly.  Upon  the  ques- 
tion, how  often  it  did  report,  history  throws  no  light  whatever.  The  fact 
that  a  law  imposed  some  duty  on  a  bank,  at  that  period,  raises  but  a  limited 
presumption  that  it  ever  did  it.  In  a  communication  of  January  24,  181 1, 
Gallatin  said  that  the  charter  of  the  Bank  called  only  for  "general  state- 
ments" of  the  leading  facts  in  regard  to  its  condition  ;  that  only  such  had 
been  required,  and  only  such  had  been  furnished.  In  view  of  the  prevalent 
notions  about  the  mystery  and  secrecy  proper  to  a  bank,  we  may  well 
believe  that  this  bank  was  very  reluctant  to  make  statements,  and  we  may 
doubt  if  the  Secretary  called  for  them  very  often.  If  any  were  made,  who 
should  have  been  in  a  position  to  use  them,  if  not  the  man  who  had  been 
Secretary  of  the  Treasury  for  ten  years  ?  If  they  ever  existed  they  have  been 
burned  ;  so  that  the  question  whether  they  ever  existed  or  not  is  open  to 
easy  and  unprofitable  speculation.  According  to  the  detailed  report  of  Janu- 
ary, 181 1,  the  bank  held  private  deposits,  $6  millions;  public  deposits, 
$2  millions;  bank  deposits,  $600,000.  It  had  $5  millions  circulation; 
$14. S  millions  discounts;  had  lent  the  United  States  $2.7  millions;  was  a 
creditor  of  other  banks  for  $900,000  and  held  their  notes  for  $400,000.  It  had 
$S  millions  in  specie.*  In  looking  to  the  future,  Gallatin  regarded  the  Bank 
as  essential  to  the  fiscal  affairs  of  the  federal  government,  especially  if  there 
should  be  a  war.  He  proposed  that,  in  renewing  the  charter,  the  Bank  should 
be  called  on  to  pay  interest  on  the  public  deposits;  that  it  should  have  some 
government  directors;  that  its  capital  should  be  made  $30  millions;  and 
that  the  States  should  be  allowed  to  subscribe  a  part  of  the  capital  and  to 
appoint  some  of  the  directors.! 

The  5,000  shares  in  the  Bank  owned  by  the  United  States  were  sold  as 
follows:  2,493  shares,  '"  '796-7,  at  125;  287  shares,  in  1797,  at  120;  2,220 
shares,  in  1802,  at  14s.  As  the  stock  was  paid  for  in  ten  annual  installments, 
some  of  this  was  sold  before  it  had  been  paid  for.  The  total  premium 
obtained  was  $671,860;  the  amount  of  dividends  received  by  the  United 
States,  while  it  held  the  stock,  was  $1,101, 720.!  The  sale,  in  1802,  was  to 
Sir  Francis  Baring,  who  re-sold  in  England  at  i  so.  Carey  argued  that  it 
would  disgrace  American  credit  not  to  re-charter  the  bank  after  selling  the 
stock  at  this  rate.  He  also  argued  that  the  Bank  of  the  United  States  was 
no  longer  a  "national"  bank,  since  these  government  shares  had  been  sold, 
and  therefore  that  all  the  allegations  of  danger  on  account  of  the  connection 
between  the  government  and  the  Bank  had  now  fallen  to  the  ground.  He 
attributed  the  stringency  in  the  money  market,  in  1810,  which  the  "Aurora" 
and  other  opponents  of  the  Bank  charged  to  its  wilful  and  malicious  action, 
to  the  multiplication  of  branch  banks  in  Pennsylvania,  and  the  necessity 


*  Seybert;  Sutistics,  526. 


t  2  Folio  Finance,  551. 


t  Seybert,  519. 


50 


A  HISTORY  OF  BANKING. 


imposed  on  the  mother  banks  by  an  act  of  the  Legislature  to  receive  the 
branch  notes  in  payments.  He  complained  very  much  that  he  could  not 
obtain  the  information  which  was  necessary  for  the  defense  of  the  Bank,  and 
of  "  the  obligation  of  secrecy  in  banking  transactions  which  precludes  a 
writer  who  undertakes  the  defense  of  such  an  institution  from  the  use  of 
many  of  the  most  important  documents  on  which  the  whole  of  his  reason- 
ing may  depend."  The  Bank  had  not  taken  the  notes  of  its  branches  in 
payment  from  its  customers,  which  was  a  ground  of  complaint  the  justice 
of  which  Carey  conceded.  His  chief  argument  for  renewal  was  the  terrible 
calamity  that  would  occur  to  the  business  of  the  country  if  the  bank  should 
wind  up,  and  he  quoted  Atwater  of  New  Haven,  with  horror,  because 
Atwater  thought  that  it  would  be  a  good  thing  to  have  all  banks,  bank 
paper,  and  bank  charters  burned  up  together.* 

Bollmannf  held  that  the  winding  up  of  the  Bank  would  force  the  winding 
up  of  all  the  other  banks,  and  hence  would  retire  $55  millions  of  circulation. 
The  "Aurora"  was  the  organ  of  the  opposition  party.  November  8,  1810, 
it  offered  twenty  reasons  why  the  Bank  should  not  be  re-chartered.  The 
one  which  was  reiterated  the  most  frequently  and  in  the  greatest  number  of 
different  forms  was  that  it  was  foreign,  or  was  owned  by  foreigners.  In 
fact  about  two-thirds  of  the  stock  was  owned  abroad.  The  ninth  reason 
was  "because  its  influence  has  been  exercised  in  our  local  elections,"  and 
because  it  was  a  political  engine  to  favor  "such  as  would  abandon  the 
interests  of  popular  representative  government."  There  were  declared  to 
be  great  abuses  in  the  Bank,  above  all  at  Charleston  and  New  Orleans,  and 
its  patronage  was  declared  to  be  hostile  to  American  interests.  The  most 
original  reason  for  winding  it  up,  however,  was  in  order  to  find  out  whether 
it  had  been  useful  or  not. 

In  regard  to  the  political  influence,  we  find  a  specification,  in  the  same 
paper,  January  9,  181 1,  in  which  it  is  stated  that  the  cashier  of  the  Charleston 
branch  went  "upon  the  election  ground,"  and  threatened  curtailment  of 
discounts  as  a  punishment  for  voting  for  those  who  were  "  hostile  to  English 
domination."  "  From  that  day  [of  its  origin]  to  this,  the  whole  force  of  this 
all-corrupting  Bank  has  been  directed  with  an  uniformity  unsurpassed  to  the 
service  and  use  of  England,  to  the  injury  and  abuse  of  this  nation."  The 
bank  was  intended  to  create  a  "money  interest,  whicb  u.ls  iperscde 
and  occupy  the  place  of  those  interests  which  weri  nlc  nly  promulgated  in 
the  Declaration  of  Independence."    The   "A  uiJ  a  story  that  the 

branch  at  New  York  had  endeavored  to  pu  .vstor,  for  no'  ting  a 
sufficiently  good  federalist,  by  refusing  him  di  unts,  an  i  that  the  clique 
surrounding  it  had  given  information  to  the  English  cruise-  so  that  they  might 
catch  his  ships.  The  arguments  of  these  newspaper  dis,  ':ints  were  full  of 
emphatic  denunciation,  but  we  can  glean  from  them  nothing  more  in  regard 
to  the  history.     The  "Aurora"  often  hinted  that  it  had  a  project  of  its  own 


*  Carey;  Letters  to  Seybert. 


*  Paragraphs  on  Banks. 


FIRST  BANK  OF  THE  UNITED  STATES. 


51 


in  reserve,  which  would  be  far  better,  and  it  denounced  Gallatin  as  a  traitor 
for  defending  the  Bank.  Its  ideas  were  those  which  had  already  begun  to 
find  expression  in  the  great  banks  of  the  States.  ' '  To  any  banking  institution 
not  founded  on  the  landed  security  of  the  United  States,  we  are  hostile." 

Atwater's  pamphlet*  echoes  the  same  notions  and  prejudices,  of  which 
the  strongest  is  thi  hostility  to  foreigners.  "  Think  of  the  locusts  of  Egypt. 
These  were  to  the  people  precisely  what  banks  are  to  our  farmers."  The 
Bank  is  aristocratic  and  federal.  "One  bank  like  that  of  the  United  States 
will  destroy  the  industrious  habits  of  a  thousand  families  annually."  Niles, 
in  his  reminiscences  of  political  history,  says  that  the  federalists  regarded  the 
first  Bank  of  the  United  States  as  their  "sheet-anchor,"  and  the  democrats 
"deprecated  it  as  an  oppression,  unconstitutional  in  its  organization,  and 
pernicious  in  its  operation. "f  "The  time  has  been  that  a  man,  who  did 
not  wear  a  black  cockade  might  as  well  have  offered  up  his  prayers  to  the 
father  of  mischief  for  a  benefit  (as  some  savages  do)  as  have  asked  an 
accommodation  of  the  Bank  of  the  United  States.  "J 

The  Legislature  of  Virginia,  at  the  session  of  1810-11,  instructed  their 
Senators  and  requested  their  Representatives  to  vote  against  the  renewal, 
because  the  use  of  the  power  to  pass  an  act  of  incorporation  by  Congress 
was  unconstitutional  and  "an  encroachment  on  the  sovereignty  of  the 
States."  The  Pennnsylvania  House  of  Representatives  adopted  resolution.s 
against  the  Bank,  December  13,  1810,  which  were  based  on  the  doctrine  of 
the  Virginia  and  Kentucky  resolutions  of  1798.  In  the  debate  on  thcsj 
resolutions,  Nicholas  Biddle  took  a  most  prominent  part.  All  these  express- 
ions taken  together  show  the  social  and  political  animosities  which  were 
awakened  and  developed  in  connection  with  this  institution ;  but  we  have 
very  little  means  of  learning  what  truth  there  was  in  the  assertions.  In  a 
speech  in  the  House  of  Representatives,  in  January,  1834,  Horace  Binney, 
who  had,  as  a  young  man,  been  a  director  of  the  Bank,  in  the  last  years  of 
its  existence,  spoke  with  great  feeling  and  eloquence  in  defense  of  the  men 
who  had  at  that  time  been  directors,  and  against  the  old  imputations  against 
the  first  Bank,  which  had  been  renewed  in  the  war  against  the  second : 
"The  directors  of  the  parent  Bank  were  a  body  of  as  honorable  men,  as 
impartial,  and  as  faithful  to  their  trust,  as  any  men  that  ever  lived.  There 
was  not  a  politician  at  their  board,  nor  a  man  who  gave  himself  up  to  anything 
but  the  performance  of  duty  to  his  trust." 

The  debate  in  Congress  on  the  renewal  of  the  charter  added  very  little  to 
these  arguments.  The  petition  of  the  Bank  for  a  renewal  was  presented  March 
26,  1808,  but  no  action  was  taken  upon  it.  December  4,  1809,  Nicholas  of 
Va,  moved  that  "  provision  be  made  by  law  for  a  general  national  establish- 
ment of  banks  throughout  the  United  States,  and  that  the  profits  arising  from 
the  same,  together  with  such  surplusses  of  revenue  as  may  accrue,  be  appropri- 
ated for  the  general  welfare,  in  the  construction  of  public  roads  and  canals,  and 


i  {■ 


*  Considerations  on  tlie  Dissolution  of  the  United  States  Banli. 


t  J4  Niles,  igi. 


t  17  Niles,  67, 


52 


A  HISTORY  OF  BANKING. 


!  a 


.  'ir 


■I' 


the  establishment  of  seminaries  for  education  tiiroughout  the  United  States." 
This  outcropping  of  the  notions  which  entered  into  all  the  big  banks  of  the 
States  schemes  is  worthy  of  notice.  The  plan  was  to  have  the  federal  state 
carry  out  the  same  operation  with  the  States,  as  the  State,  in  all  those 
schemes,  did  with  the  counties,  and  the  proposition  came  from  the  core  of 
the  State  rights  group  who  were  fighting  the  Bank.  The  very  men  and  the 
very  school  of  opinion  who  were  hostile  to  banks  altogether  on  the  federal 
arena,  invented  and  established  the  big  State  paper  money  machines. 

Love  of  Virginia  reported,  April  2,  1810,  an  elaborate  plan  of  a  national 
barik,  to  have  its  seat  at  Washington,  and  branches  in  such  States  as  con- 
sented. The  Stater,  were  to  subscribe  shares  which  were  allotted  to  them. 
it  was  something  between  the  proposed  Bank  of  the  United  States  and  the 
big  banks  of  the  States.  April  7th,  a  bill  was  introduced  to  continue  for 
twenty  years  the  existing  Bank  of  the  United  States  with  the  modifications 
which  Gallatin  had  suggested.  Abonusof$i.23  millions  wastobe  paid  within 
the  year;  the  Bank  was  to  loan  the  government  not  more  than  $5,000,000, 
at  not  more  than  six  per  cent.,  and  it  w.is  to  pay  three  per  cent,  on  the 
minimum  annual  balance  ot  tiie  public  deposits  in  excess  of  $3  millions. 
April  13th,  this  bill  was  debated  in  Committee  of  the  Whole,  but  the 
House  never  gave  the  Committee  of  the  Whole  permission  to  debate  it 
further. 

Although  the  Bank  had  presented  the  suoject  in  1808,  it  never  was  really 
considered  in  Congress  until  January,  1811,  throe  months  before  the  charter 
was  to  expire.  Perhaps  the  most  representative  speech  against  the  Bank 
was  that  of  Desha;  of  Kentucky.  He  said  that  the  question  was:  "Whether 
we  will  foster  a  viper  in  the  bosom  of  our  country  that  will  spread  its  deadly 
venom  over  the  land,  and  finally  affect  the  vitals  of  your  republican  institut- 
ions; or  whether  we  will,  as  it  is  our  duty,  apply  the  proper  antidote  by  a 
re^sal  to  renew  the  charter,  thereby  checking  the  cankering  poison,  the 
importation  and  dissemination  of  foreign  influence,  that  has  already  brought 
our  government  to  the  brink  of  ruin."  He  had  no  doubt  that  George  111  was 
a  stockholder  in  the  Bank.  He  viewed  all  banks  as  hostile  to  the  principles 
of  our  government.  Commerce  was  but  little  better,  yet  he  was  not  hostile 
to  it,  but  wanted  it  kept  "within  the  pale  of  reason."  The  large  foreign 
capital  in  this  Bank,  he  said,  gave  the  tone  to  elections  in  New  York  until 
Burr  checked  it  with  the  Manhattan  Company.  He  was  sufficiently  familiar 
with  banks  to  be  convinced  that  "they  are  systems  of  speculation,  calculated 
to  suit  the  speculatory  and  mercantile  class  at  the  expense  of  those  who  are 
the  support  and  sheet-anchor  of  your  government."  He  referred  with  scorn 
to  the  broken  banks  of  New  England.  The  information  of  the  speculations 
and  swindlings  in  the  East  had  made  the  West  shun  "  the  possibility  of  being 
engulfed  in  a  similar  vortex."  The  B;'"k  "  will  further  the  views  of  federal- 
ism by  increasing  their  power,  and  assist  them  in  overturning  the  present 
system  of  government,  on  the  ruins  of  which  they  will  count  upon  raising 
one  more  congenial  to  their  purposes."    Not  only  the  British  capital  in  the 


'  11 


FIRST  BANK  OF  THE  UNITED  STATES. 


53 


Bank,  but  the  British  possessions  in  North  America  were  a  menace  to  us. 
It  was  high  time  to  find  out  whether  this  Bank  was  solid  or  a  fraud. 

Wright  of  Maryland,  gave  specifications  of  the  alleged  political  influence 
of  the  Bank.  Merchants  of  Philadelphia  had  signed  petitions  for  Jay's  treaty, 
against  their  convictions,  and  had  excused  themselves  by  saying  that,  if  they 
did  not  do  so,  they  could  get  no  more  bank  accommodation.  In  Maryland, 
bank  directors  had  been  thrown  out  of  office  because  they  voted  for  Smith. 
Evan  Jones  had  been  elected  president  of  the  branch  at  New  Orleans  to 
succeed  a  good  republican,  although  Jones  was  a  refugee  tory  and  was  sus- 
pected of  being  one  of  Burr's  men. 

In  answer  to  the  argument  about  the  constitutionality,  it  was  pointed  out 
that  the  State  Constitutions  did  not  expressly  grant  to  the  States  the  power 
to  pass  acts  of  incorporation.  Nobody  noticed  that  banks  had  already  been 
incorporated  by  the  territorial  governments  of  the  Mississippi  Valley,  the 
strongest  case  of  all  being  that  of  the  Bank  of  Louisiana,  which  was  incor- 
porated before  there  was  even  an  organized  territorial  government.* 

Nicholson,  of  New  York,  stated  that  the  charter  could  have  been  carried 
a  year  before  by  a  majority  of  nearly  thirty. 

The  destruction  of  the  Bank  was  a  part  of  the  programme  of  the  young 
democrats,  who  wanted  a  war  with  England,  in  order  to  conquer  Canada. 
Clay  was  a  representative  and  leader  amongst  them.  In  his  speech  against 
the  Bank,  he  complained  that  an  act  of  Congress,  after  being  passed  accord- 
ing to  the  prescriptions  of  the  Constitution,  must  be  submitted  to  the  presi- 
dent and  directors  of  the  Bank  for  approval.  This  referred  to  the  provision 
that  the  Bank  should  explicitly  accept  the  new  charter  if  it  was  passed.  He 
also  said  that  we  might  be  on  the  brink  of  war  with  England,  and  added, 
"Should  such  an  eve..t  occur,  do  you  apprehend  that  the  English  premier 
would  experience  any  difficulty  in  obtaining  the  entire  control  of  this  institu- 
tion ?"  The  fact  was  often  pointed  out  in  the  debate,  which  lay  upon  the 
face  of  the  bill,  that  no  foreigner  could  vote  in  the  Bank.  Of  the  25,000 
shares,  18,000  were  owned  abroad ;  the  other  7,000  shares  ruled  the  Bank. 
Therefore  it  was  plain  that  the  foreign  stockholders,  instead  of  gaining, 
through  the  Bank,  any  power  to  act  upon  Am'^rican  interests,  had,  by  taking 
stock  in  it,  put  their  own  interests  at  the  mercy  of  Americans. 

Leaving  aside  all  the  subtleties  about  "sovereignty,"  the  question  was 
whether  the  Constitution  had  constituted  a  State,  with  a  complete  structure, 
adequate  functions,  and  sufficient  powers  to  fulfil  all  the  duties  of  civil  life 
for  the  welfare  of  the  people.  The  opponents  of  the  Bank  argued  that  the 
State  banks  could  perform  all  the  services  required  by  the  government  just 
as  well  as  the  national  bank,  but,  as  they  were  answered  in  the  debate,  this 
was  admitting  that  some  bank  v  as  "necessary,"  in  the  sense  of  the  Consti- 
tuiion,  for  the  purposes  of  the  government,  In  truth,  however,  the  gravest 
question  in  the  political  order  of  the  United  States  was  then,  how  much  in- 


t    All 

i    \  '\ 

'i 

i 


,1 


f:M 


*  See  page  61. 


ini 


54 


/i  HISTORY  OF  BANKING. 


tegration  the  Constitution  had  given  to  the  Union.  The  conception  of  a 
federal  State  was  passionately  hated  and  resisted  by  a  majority  of  the  people. 
They  felt  the  discipline,  order,  method  and  punctuality  of  the  great  empire  as 
an  irksome  restriction  on  the  loose  and  shiftless  habits  of  former  times  which 
they  called  liberty.  It  was  true  that  there  was  such  an  advancing  constraint. 
The  Bank,  by  its  symbolism,  and  by  its  functions,  was  the  only  great  insti- 
tution which  was  helping  on  the  work  of  social  and  political  integration. 
That  was  exactly  the  reason  why  it  was  hated  by  the  State  rights  men  and 
anti-federalists. 

Testimony  to  this  action  of  the  Bank  was  given  in  the  debate.  "I  ask 
the  question:  Will  a  bank  in  North  Carolina  trust  a  bank  in  New  Hamp- 
shire ?  No !  but  the  State  and  every  individual  in  it  would  trust  the  Bank 
of  the  United  States.  You  could  not  establish  a  connection  between  North 
Carolina  and  New  Hampshire,  so  that  either  would  trust  the  other.  The 
establishment  of  the  Bank  of  the  United  States  affords,  in  this  case,  a  facility 
useful  and  absolutely  necessary  to  carry  on  the  measures  of  the  govern- 
ment."* It  had  a  corresponding  effect  on  commercial  affairs.  Before  1800 
the  collectors  at  the  different  ports  kept  the  duty  bonds  in  their  own  cus- 
tody. After  that  time,  by  a  new  law,  the  bonds  were  deposited  in  the  Bank 
for  collection.  They  thus  became  bank  debts,  and  although,  as  Smith  of 
Maryland  argued,  trying  to  break  the  force  of  this  fact,  the  coercion  to  pay 
was  not  in  the  Bank  but  in  the  custom  house,  nevertheless,  in  practice,  it 
was  the  Bank  usage  which  set  the  standard.  Crawford  said:  " It  is  impos- 
sible to  resist  the  conviction  that  the  prompt  and  secure  collection  of  our 
revenue  is  principally  owing  to  the  influence  of  the  Bank."  These  facts, 
however,  furnish  the  reasons  why  the  Bank  was  hated  by  large  classes  of 
business  men  and  politicians.  The  republicans  felt  sure  that  it  never  would 
be  an  ally  of  theirs,  and  therefore  they  thought  it  the  simplest  dictate  of 
political  policy  to  destroy  it  while  they  could.  In  vain  the  fact  was  pointed 
out  to  them  that  the  federalists,  although  they  had,  as  the  opponents  said, 
had  this  tremendous  engine  in  their  hands  for  twenty  years,  had  been  ousted 
by  the  opponents,  and  that  the  only  three  out  and  out  federal  States,  besides 
Massachusetts,  had  no  branch  of  the  Bank,  while  the  States  in  which  there 
were  branches,  with  the  same  exception,  were  either  wholly  or  in  large  part 
republican. 

In  the  House  of  Representatives  the  renewal  of  the  charter  was  indefi- 
nitely postponed  January  24,  181 1,  by  a  vote  of  65  to  64.  In  the  Senate  it 
was  lost  by  the  casting  vote  of  the  Vice-President,  George  Clinton,  Feb- 
ruary 20th. 

After  the  re-charter  was  defeated,  the  Bank  asked  for  an  extension  of  the 
powers  requisite  for  winding  up.  This  was  refused.  In  a  report  on  it  by 
Clay,  to  the  Senate,  it  was  said  :  "The  injurious  effects  of  a  dissolution  of 
the  corporation  will  be  found  to  consist  in  an  accelerated  disclosure  of  the 

*  Alston  of  North  Carolina,  February  ii,  1811. 


FIRST  BANK  OF  THE  UNITED  STATES. 


55 


actual  condition  of  those  who  have  been  supported  by  the  credit  of  others; 
but  whose  insolvent  or  tottering  situation,  known  to  the  Bank,  has  been 
concealed  from  the  public  at  large." 

March  19,  1812,  the  receivability  of  the  notes  of  the  Bank  for  dues  to  the 
United  States  was  repealed,  the  Circuit  Court  of  Virginia  having  just  before 
decided  that  those  notes  were  still  everywhere  a  good  tender  for  duties.* 

As  soon  as  the  re-charter  was  definitely  defeated,  the  Bank  applied  to 
the  Legislature  of  Pennsylvania  for  a  charter,  to  retain  all  its  capital,  and  to 
be  allowed  to  do  business  in  such  States  as  might  permit  it.  The  applica- 
tion was  defeated,  but  renewed  the  next  year,  with  an  offer  to  subscribe 
$500,000  to  public  works,  and  to  lend  the  State,  at  any  time  during  the 
charter  period,  the  same  sum  at  five  per  cent.f 

Charles  Biddle,  who  was  then  in  the  State  Senate,  thought  that  it 
would  be  a  great  advantage  to  the  State.  His  son,  Nicholas,  was  in  the 
State  House  of  Representatives,  and  made  a  speech  in  favor  of  it.  The 
objection  which  weighed  most  was  that  the  stock  was  owned  by  foreigners.  J 

Between  March  1st  and  September  ist,  the  Bank  paid  the  public  and 
private  deposits,  and  redeemed  $3.5  millions  worth  of  bank  notes — in  all 
$9.2  millions,  and  its  specie  fell  only  $335, 175.  In  the  first  year  of  liquidation 
it  paid  $1 1.6  millions,  and  the  specie  stock  increased  $1.2  millions.§  Gallatin 
said  that  the  public  deposits  were  removed  within  a  week  before  the  expira- 
tion of  the  charter,  and  no  harm  was  done.||  He  takes  no  note  of  the  fact 
that  the  Bank  was  a  creditor  of  the  Treasury  for  a  sum  about  equal  to  the 
government  deposit.  In  his  report  on  the  selected  banks,  January  8,  1812, 
he  stated  that  the  public  deposits  were  gradually  withdrawn  and  that  the 
account  of  the  Treasury  with  the  Bank  was  closed,  September  2,  181 1, 
except  that  $70,000  were  still  at  the  credit  of  the  disbursing  officers  at  New 
Orleans.  The  credits  of  the  disbursing  officers  always  cause  ambiguity  as 
to  the  public  deposits.  During  the  existence  of  this  Bank  the  public 
deposits  were  not  placed  in  it  exclusively  even  on  the  Atlantic  coast.  The 
principal  disbursing  officers  were  directed  by  law,  in  1809,  to  keep  the  pub- 
lic money  in  their  hands,  whenever  possible,  in  some  incorporated  bank  to 
be  designated  by  the  President.  A  treasury  report  of  January  9,  181 1,  shows 
that  one-third  of  the  public  deposits  were,  at  that  time,  in  eleven  State 
banks,  of  which  only  three  were  west  of  the  Alleghanies. 

As  soon  as  it  was  certain  that  the  Bank  would  not  be  re-chartered,  local 
banks  were  selected  at  the  chief  ports  of  entry,  in  which  the  collectors  were 
ordered  to  place  the  duty  bonds  for  collection.  The  only  condition  imposed 
on  the  selected  banks  was,  that  they  should  give  a  preference  in  discounts  to 
persons  who  had  duty  bonds  to  pay.  Within  a  year,  the  cash  balance  in  the 
Treasury  was  divided  in  deposits  between  twenty-one  banks,  "i^  As  to  the 
currency  receivable  for  dues  to  the  Treasury,  the  law  of  1789,  modified  by 


« 


I' 


■1   ! 


1| 


*  2  Folio  Finance,  si 7. 
X  Memoir  of  Charles  Biddle,  331,  335. 


t  Report  of  the  Comm.  on  Ways  and  Mecns,  (Penn.)  1834. 
g  Ilinney's  Report,  March  4,  1834.  .  3  Gallatin's  Writings,  591. 

^  2  Folio  Finance,  51O. 


^1 


ii  • 


'I; 


'1 1^' 


■• 


rir  ^. 


I,  vM 


1) 


r. 


».! 


i! 


56 


y^  HISTORY  OF  BANKING. 


Hamilton's  orders,*  came  into  force  again,  but  by  the  Act  of  June  }o,  1812, 
Treasury  notes  were  made  a  good  tender  to  the  Treasury,  and  the  first  of 
them  were  issued  in  October. 

The  dividends  of  the  Bank,  down  to  January,  1809,  inclusive,  averaged 
eight  and  thirteen  thirty-fourths  per  cent.  The  highest  point  the  stock  ever 
reached  was  1 50.  It  is  stated  that  at  one  time  the  stock  of  specie  in  the 
New  York  branch  was  reduced  to  $io,ooo.t  It  is  also  stated  that  the  average 
loss  per  annum  by  bad  debts,  during  the  twenty  years  of  its  existence,  was 
sixty-one  one-hundreths  of  one  per  cent.  J  No  financial  disturbance  whatever 
occurred  upon  the  winding  up  of  this  bank.  Carey's  apprehensions  proved 
entirely  groundless. § 

Its  stock  was  liquidated  at  one  hundred  and  nine  dollars,  one  and  a-quarter 
cents  for  one  hundred  dollars  paid  in.  The  last  such  payment  which  has 
been  found,  is  mentioned  in  Niles'  Register  for  September  !_?,  1834.  Raguet 
calculated  that  if  the  dividends  were  regarded  as  deferred  payments,  com- 
pounded semi-annually,  the  return  was  equal  to  97,  on  the  day  the  charter 
expired.!  The  amount  of  its  notes  which  had  not  been  presented,  in  1823, 
was  $205,000.  The  court  then  released  the  commissioners  from  liability  for 
them,  $5,000  being  reserved  to  meet  any  cases  of  special  hardship.  Eleven 
hundred  dollars  only  were  afterwards  presented,  most  of  it  by  an  old  Revo- 
lutionary soldier,  in  1825.T 

In  1834,  the  city  council  of  Philadelphia  appointed  a  committee  to  inquire 
into  the  best  means  of  closing  the  trust  of  the  old  Bank  of  the  United  States, 
in  order  that  they  might  get  possession  of  the  house  which  had  been 
bequeathed  to  the  city  by  Girard,  but  which  was  then  "in  tenure"  of  the 
cashier  of  Girard's  bank  without  rent.  The  report  of  this  comn.ittee  showed 
that  Girard  bought  the  banking  house  of  the  old  Bank  and  a  house  in  Chest- 
nut street  belonging  to  it,  which  was  the  one  in  question.  The  banking 
house  had  already  passed  to  the  city  and  was  leased  to  the  Girard  Bank.  It 
was  stated  that  the  Bank  trust  held  at  that  time,  %22, 564  of  unclaimed  divi- 
dends, and  had  just  declared  a  dividend  of  $51,250.  There  were  some  debts 
not  collected.  The  city  desired  to  take  over  the  trust,  to  be  administered  by 
the  Commissioners  of  the  Girard  estate.    It  is  inferred  that  this  was  done.** 

It  is  very  desirable  to  form,  if  possible,  a  notion  of  the  point  of  departure 
from  which  the  country  entered  on  the  inflation  of  the  following  period. 
Blodget's  figures  represent  the  amount  of  specie  in  the  currency  as  exceeding 
the  paper  in  the  first  years  of  the  .ntury.  In  the  debate  on  the  renewal  of 
the  charter,  however,  the  statements  made  show  a  very  different  state  of 

•  S«  page  22. 

i  Gouge ;  Journal  of  Banking,  252. 

X  H.  C.  Carey  ;  The  Credit  system,  1838.  It  is  there  stated  also  that  the  Bank  of  America,  New  York,  lost,  from  1812 
to  1837,  less  than  one-tenth  of  one  per  cetit.  per  annum  on  its  loans,  and  that  Girard,  in  twenty  years,  lost  one-half  of  one  per 
cent,  per  annum  in  the  same  way. 

S  Seybert,  522. 

I  Gouge ;  Journal  of  Banking,  340. 

1  56  Niles,  273. 

**  14  Hazard's  Register,  216;  15  Ditto,  124. 


FIRST  BANK  OF  THE  UNITED  STATES. 


57 


things.  "Specie  has  been  almost  banished  from  circulation  by  paper." 
Only  notes  of  the  Bank  of  the  United  States  are  current  everywhere.  "You 
can  outride  in  twenty-four  hours  the  credit  of  any  other  bank  in  the  country." 
The  paper  of  some  of  the  banks  is  depreciated.  That  of  others  is  current 
but  a  short  distance. 


IS 


i  Pj!FfO)a;cmi0iomsmsms>DiWk^^ 


CHAPTER  IV. 


The  Earliest  Banks  in  the  Mississippi  Valley. 


H 


IT  no  place  and  at  no  time  has  the  history  of  banking  ever  been 
so  varied,  so  bold,  and  so  rich  in  experience,  as  it  was  in  the 
Mississippi  Valley  in  the  first  thirty  years  of  this  century.  It 
was  intertwined  there  with  a  number  of  the  matters  which 
touch  the  interests  of  men  and  excite  their  passions  in  the 
highest  degree.  It  was  thus  linked  with  the  political  interests  which  were 
connected  with  the  growth  of  the  United  States  into  a  federal  State ;  with 
the  questions  of  constitutional  law  concerning  the  inviolability  of  contracts 
and  the  independence  of  the  judiciary;  with  the  question  of  disputed  title 
to  land,  which  of  course  affected  every  man  in  the  community;  and  with 
the  system  of  execution  for  the  collection  of  debts. 

The  Governor  of  Kentucky,  in  his  message  of  1800,  complained  of  a  lack 
of  revenue  and  of  the  economic  situation  which  he  described  as  "almost 
destitute  of  specie."  The  exports  would  not  pay  for  the  imports.  He  pro- 
posed an  effort  to  open  trade  down  the  Mississippi.  The  notion  was  that 
the  eastern  trade  drew  off  specie  because  the  exchange  of  commodities  was 
not  mutually  advantageous.*  Here  we  see  a  recurrence  of  the  ideas  and  of 
the  misinterpretation  of  facts  which  we  noticed  on  the  Atlantic  coast  in  the 
colonial  days,  in  regard  to  the  trade  with  England.  !t  has  been  stated  that  sil- 
ver ceased  to  come  up  the  Mississippi  Valley  after  the  peace  between  Spain  and 
England  in  1801,  but  this  is  certainly  a  mistake,  for  that  movement  of  silver 
continued  to  be  large  and  important  for  twenty-five  or  thirty  years  more, 
and  it  would  be  difficult  to  say  when  it  stopped. 

By  an  Act  of  December  6,  1802,  the  Kentucky  Insurance  Company  was 
chartered  until  January  1,  1818.  The  purpose  was  to  insure  boats  and  car- 
goes on  their  way  down  the  river.  This  company  was  not  explicitly  author- 
ized to  issue  notes  for  circulation,  but  it  was  incidentally  provided  that  its 
notes  payable  to  bearer  should  pass  by  delivery  only.  On  reading  the  sec- 
tion of  the  charter  it  is  difficult  to  say  whether  it  was  very  craftily  or  very 


•  Butler,  295. 


THE  EARLIEST  BANKS  IN  THE  MISSISSIPPI  F ALLEY.        59 

carelessly  drawn.  Butler  says  in  regard  to  the  institution  that  "it  began  in 
fraud  and  ended  in  bankruptcy."  "The  political  party  which  then  controlled 
Kentucky  held  banks  in  horror  and  never  would  have  passed  the  bill  had 
they  understood  its  provisions."* 

December  27,  1806,  the  Bank  of  Kentucky  at  Frankfort  was  chartered,  to 
last  until  December  31,  1821.  The  capital  was  to  be  $1  million, 'half 
of  it  to  be  subscribed  by  the  State.  It  was  to  begin  when  $20,000  were 
subscribed.  All  the  debts,  exclusive  of  deposits,  were  not  to  exceed  three 
times  the  capital.  It  was  to  loan  only  to  Kentuckians;  no  director  might 
borrow  over  $5,000  or  be  an  endorser  for  more  than  $10,000  in  the  bank.  It 
might  have  branches  in  the  State  for  discount  and  deposit  only.  It  was  to 
make  weekly  reports  to  the  Governor,  and  its  notes  "payable  on  demand  in 
current  money"  were  to  be  received  by  the  State.  The  debt  to  the  State 
from  the  settlers  on  the  vacant  lands  was  relied  upon  to  pay  the  State's  sub- 
scription. The  Legislature  had  the  power  to  elect  the  president  and  six 
directors,  "The  political  majority,  when  times  of  excitement  arose,  drove 
the  bank  on  the  shoals  of  party  and  ultimately  shipwrecked  the  institution. 
The  power  of  branching  the  bank  became  a  subject  of  local  and  party  con- 
tention, and  the  influence  of  the  Legislature,  through  its  election  of  the 
majority  of  the  directory,  was  brought  to  bear  upon  the  decision.  The 
extension  of  the  bank  then  ceased  to  be  a  mere  fiscal  or  mercantile  question 
to  be  governed  by  the  interests  of  the  corporation,  but  was  converted  into 
one  of  political  influence,  "f 

Ohio. — The  Miami  Exporting  Company  was  incorporated  in  April,  1803, 
with  "banking  privileges."  February  10,  1808,  the  Bank  of  Marietta  asked 
for  a  charter  until  18 18,  from  which  it  appears  that  it  was  an  already  existing 
association.  The  limit  of  the  capital  was  set  at  $soo,ooo,  besides  such  shares 
as  the  State  might  take.  The  State  might  subscribe  one  share  for  every  five 
subscribed  by  individuals.  It  was  to  have  one  year's  credit  in  paying  for 
them,  but  was  to  receive  dividends  on  them  as  if  paid  for.  There  was  no 
clause  providing  for  specie  payment  and  no  penalty  for  suspension;  but  the 
bank  was  forbidden  to  issue  notes  or  contract  debts  "payable  in  the  bills  of 
credit  emitted  by  the  laws  of  this  State."  A  week  later  the  Bank  of  Chilli- 
cothe  was  incorporated,  with  a  capital  not  to  exceed  $100,000.  The  State 
subscription  and  the  prohibition  against  dealing  in  State  notes  were  the  same 
as  in  the  case  of  the  former  bank.  It  was  provided  that  this  act  "shall  be 
construed  in  all  courts  and  places  benignly  and  favorably  for  any  beneficial 
purposes  thereby  intended."  At  the  same  time  the  Bank  of  Steubenville 
was  incorporated  with  all  the  same  features.  Three  other  banks  were 
incorporated  in  18 12  and  18 13.  At  the  session  of  1813-14  a  number  of 
manufacturing  companies  and  companies  to  make  canals  and  harbors  were 
incorporated,  but  they  were  expressly  forbidden  to  engage  in  banking. 

In  the  Territory  of  Michigan,  the  Governor  and  three  Judges  constituted 


1' 

'I 
I 


1, 
I 


lii 


k\ 


I 


*  Collins,  56. 


t  Butler,  332. 


6o 


A  HISTORY  OF  BANKING. 


yi- 


'  I 


S     5 


the  Legislative  Council.  They  passed  an  act  "Concerning  the  Bank  of 
Detroit,"  September  19,  1806;  which  act  was  disallowed  by  Congress 
March  3,  1807.  An  act  of  November  4,  181 5,  imposed  a  penalty  on  any 
proprietor  or  member  of  an  unincorporated  bank.  The  first  bank  was  the 
Bank  of  Michigan,  chartered  December  19,  1817.  The  power  of  the  Terri- 
torial authority  to  charter  it  was  affirmed  by  the  Court  in  1831.* 

Tennessee. — Hugh  L.  White,  in  a  speech  in  the  Senate,  March  24,  1838, 
described  the  currency  of  the  State  of  Franklin  in  eastern  Tennessee,  in  the 
yearS  following  the  Revolution.  The  salaries  of  the  Governor,  Chief-Justice 
and  other  great  officers  were  paid  in  deer  skins ;  those  of  the  inferior  officers 
in  raccoon  skins.  The  tax  collectors  cheated  the  Treasurer,  who  was  not  an 
expert  in  furs,  by  putting  raccoon  tails  on  opossum  skins,  and  paying  them 
in  instead  of  the  raccoon  furs  which  they  had  collected. 

The  Nashville  Bank  was  chartered  in  1807,  to  last  until  iSiS.f  A  copy 
of  its  charter  has  not  been  accessible,  November  20,  181 1,  the  Bank  of  the 
State  of  Tennessee  at  Knoxville  was  incorporated,  with  a  capital  of  $400,000. 
The  shares  were  apportioned  amongst  the  counties,  and  there  were  to  be 
commissioners  in  each  to  receive  the  subscriptions.  It  was  to  begin  when 
$25,000  were  paid  ir  in  specie,  and  the  State  might  subscribe  not  more  than 
$40,000  of  the  total  proposed  capital.  It  was  not  to  owe,  exclusive  of 
deposits,  more  than  twice  its  capital,  and  was  to  issue  no  notes  under  $5. 
It  was  to  last  thirty  years;  to  report  to  the  Treasurer  of  East  Tennessee 
annually,  and  to  establish  branches  if  thought  expedient.  The  Nashville 
Bank  might  unite  with  it  and  become  a  branch  of  it.  November  19,  1811, 
the  charter  of  the  Nashville  Bank  was  extended  until  1828,  and  November 
16,  1 8 13,  it  was  extended  until  1838,  the  capital  being  increased  from 
$200,000  to  $400,000. 

The  Legislative  Council  of  ;the  Mississippi  Territory  enacted,  December 
24,  1807,  that  taxes  should  be  receivable  in  "any  territorial  paper,  duly  and 
legally  issued  by  the  Auditor  of  public  accounts."  All  the  civil  organizations 
in  the  Valley  seem  to  have  used  auditor's  certificates  as  a  currency  from  their 
earliest  organization.  In  this  Territory  it  was  also  necessary  to  provide 
against  the  malfeasance  of  the  sheriffs,  collectors,  and  clerks  of  court,  by 
providing  that  they  must  pay  in  the  currency  which  they  received,  whether 
it  was  specie  or  auditor's  warrants;  from  which  it  is  inferable  that  the  latter 
were  not  at  par  of  specie.  J  December  23,  1809,  the  Legislative  Council  of 
the  Territory  incorporated  the  Bank  of  Mississippi  at  Natchez,  with  a  capital 
of  $500,000,  as  a  limit;  $50,000  to  be  raised  at  once;  to  last  until  1834.  A 
supplementary  act,  February  6,  18 18,  changed  the  name  of  the  bank  to  the 
Bank  of  the  State  of  Mississippi.  The  Governor  was  to  subscribe,  on  behalf 
of  the  State,  one  share  for  every  four  subscribed  by  individuals,  and  to 
appoint  five  directors.  The  capital  was  raised  to  $3  millions ;  it  was  to  last 
until  1840.    It  might  have  branches;  was  to  report  to  the  Governor  at  his 


•  7  Wendell,  539. 


t  3  Humphreys,  525. 


t  Act  of  December  24,  1807 


THE  EARLIEST  BANKS  IN  THE  MISSISSIPPI  l/ALLUY.        M 


demand,  not  more  frequently  than  monthly;  its  notes  were  to  be  receivable 
by  the  State;  no  other  bank  was  to  be  chartered  so  long  as  it  lasted. 

Alabama. — The  Planters'  and  Mechanics'  Bank  at  Himtsville  was  chartered 
by  the  Legislative  Council  of  the  Mississippi  Territory  December  ii,  iSi6; 
with  $50,000  capital;  to  last  until  1837;  never  to  owe  more  than  three  tiinos 
its  capital,  deposits  being  left  out  of  account;  to  issue  no  note  under  $1 ;  live 
hundred  shares  to  be  reserved  for  the  Territory  for  ten  years.  February  13, 
1818,  its  name  was  changed  to  the  Planters'  and  Merchants'  Bank.  On  the 
last  date,  the  Tombcckbce  Bank,  at  St.  Stephens,  was  chartered,  to  last  until 
1838,  with  $500,000  capital,  with  the  same  limit  on  its  debts,  and  the  denom- 
ination of  its  notes;  two-fifths  of  the  capital  to  be  reserved  for  the  Territory 
for  ten  years.  The  Bank  of  Mobile  was  chartered  November  20,  1818,  with 
a  capital  of  $soo,ooo,  payable  in  gold  and  silver  (a  specification  which  had 
not  been  included  in  the  former  charters),  to  last  until  1839.  One-fifth  of 
the  shares  were  reserved  for  the  Territory  for  ten  years.  As  soon  as  the 
State  government  was  formed,  in  the  following  year,  we  find  it  borrowing 
from  these  banks.  In  the  Constitution  of  the  State,  it  was  provided  that  one 
State  bank  might  be  established,  with  such  branches  as  the  Assembly  might 
deem  expedient.  No  branch  and  no  bank  charter  was  to  be  renewed, 
except  by  a  two-thirds  vote  of  both  Houses,  and  only  one  bank  or  branch 
might  be  chartered  or  renewed  at  the  same  session  of  the  General  Assembly. 
At  least  one-fifth  of  the  shares  of  every  bank  must  be  reserved  for  the 
State,  which  was  also  to  have  a  number  of  directors  in  proportion.  The 
State  and  the  stockholders  were  to  be  liable  for  the  debts  of  any  bank  in  the 
proportion  in  which  they  shared  the  stock.  Remedies  for  the  collection  of 
debts  were  to  be  reciprocal  for  and  against  banks.  No  bank  was  to  begin 
until  half  its  capital  was  paid  in  in  gold  and  silver.  Twelve  per  cent,  penalty 
was  imposed  for  a  failure  to  redeem  bank  notes  in  specie,  unless  the  suspen- 
sion should  be  sanctioned  by  the  Assembly.  Whenever  a  State  bank  should 
be  founded,  the  existing  banks  might  become  branches  of  it. 

When  Louisiana  was  bought  by  the  United  States,  the  movement  of  silver 
thither  from  Mexico  was  arrested  for  a  time,  and  there  was  a  complaint  of 
lack  of  currency,  although  Spain  had  a  quantity  of  paper  money  called 
"liberanzas"  afloat,  which  were  not  redeemed  at  once.  One  of  the  first 
acts  of  Governor  Claiborne  was  to  found  the  Bank  of  Louisiana.  The  non- 
American  population  was  extremely  displeased  at  this,  regarding  a  bank  as 
an  instrument  of  robbery,  and  fearing  more  paper  money.* 

In  181 1,  two  banks  were  chartered — the  Planters'  Bank  and  the  Bank  of 
Orleans.  The  former  was  an  already  existing  association.  The  capital  was 
to  be  $600,000,  payable  in  specie.  It  was  to  last  fifteen  years.  The  Bank  of 
Orleans  was  to  have  a  capital  of  $500,000,  to  last  for  fifteen  years,  and  tlie 
subscriptions  were  made  payable  in  money  or  "notes  payable  to  the  direc- 
tors."   This  and  the  following  are  the  only  cases  in  which  we  have  found. 


r- 


i 


*  Cayarre ;  Louisiana  under  American  Domination,  15. 


'fl 


62 


A  HISTORY  OF  BANK/NG. 


V 


I.  \\ 


I,'  ' 


in  n  charter,  an  explicit  provision  for  what  appear  to  be  stock  notes.  It 
may  be  added  here  that  the  charter  of  this  bank  was  extended  March  26, 
1823,  until  1847,  it  being  provided  that  a  bonus  of  $25,000  should  be  paid, 
and  that  the  old  notes  should  be  replaced  by  new.  The  Louisiana  State 
Bank  was  chartered  March  14,  1818,  with  a  capital  of  $2  millions.  One- 
fifth  of  the  subscription  was  to  be  paid  at  once  "in  cash  or  notes  pay- 
able to  the  directors,"  endorsed  to  the  satisfaction  of  the  managers,  who 
might  also  accept  mortgages.  One-quarter  of  the  capital  was  reserved  for 
the  State,  which  was  to  subscribe  $100,000  at  once,  and  appoint  six  directors 
out  of  eighteen.  The  bank  was  to  last  until  1870;  to  organize  when 
$300,000  had  been  subscribed  by  private  individuals;  to  establish  five 
branches  within  six  months;  and  to  pay  a  bonus  of  $100,000.  No  provision 
was  made  in  any  of  these  charters  for  the  case  of  suspension. 

March  3,  1819,  the  Louisiana  Bank  was  ordered  to  liquidate  before  March 
12,  1822. 

Missouri. — The  Bank  of  St.  Louis  was  chartered  August  21,  1813,  to  last 
until  1838,  with  a  capital  of  $150,000.  The  Territorial  government  might 
take  one-tenth  of  its  shares;  it  might  have  branches  in  the  Missouri  Terri- 
tory, and  could  carry  on  a  lombard  business  with  fur,  lead,  or  other  com- 
modities deposited  in  the  control  of  the  bank.  Not  more  than  one-quarter 
of  the  capital  might  be  sold  out  of  the  Missouri  and  Illinois  Territories. 

The  Bank  of  Missouri  was  incorporated,  existing  already  as  an  associa- 
tion, January  31,  1817,  with  a  capital  of  $250,000.  It  might  have  branches. 
The  Territory  reserved  an  option  for  ten  years  to  subscribe  1,000  shares. 
It  was  to  last  until  1838,  and  must  pay  specie  or  forfeit  five  per  cent,  per 
month  during  refusal.  Unauthorized  issues  were  forbidden  December  12, 
1820,  and  it  was  forbidden  to  pass  them.  Notes  of  incorporated  banks  of 
other  States,  if  not  under  $1,  were  not  included. 

The  earliest  State  Constitution  which  contained  any  mention  of  banks 
was  that  of  Indiana,  of  18 16,  in  which  it  was  forbidden  that  any  corporation 
should  be  created  to  issue  ' '  bills  of  credit  or  bills  payable  to  order  or  bearer, " 
but  a  State  bank  with  branches  might  be  established.  The  Mississippi  con- 
stitution of  1817  provided  that  no  bank  should  be  incorporated  in  which 
one-fourth  of  the  stock  was  not  reserved  for  the  State,  with  the  power  to 
appoint  a  proportionate  number  of  the  directors.  The  provision  on  this  sub- 
ject in  the  Constitution  of  Missouri,  1820,  was:  "The  General  Assembly 
may  incorporate  one  banking  company,  and  no  more,  to  be  in  operation  at 
the  same  time." 


.  •'  !■ 


PERIOD  111:    1812  TO  1829-32. 

Local  Batiks  arc  Multiplied  to  Replace  the  Bank  of  the  United  Slates.  Their 
Issues  are  Stimulated  by  their  Fiscal  Functions,  soon  hitensijicd  by  War 
Financiering.  A  Commercial  Crisis  is  Produced  with  a  Prolonged  Liqui- 
dation, Attended  by  Various  Experiments  in  Bank  Issues  and  Stay  Laws 
for  Relief.  A  Hanking  System  is  Created  Consisting  of  Local  Banks 
Co-ordinated  Around  a  Hank  of  the  United  States,  as  a  Regulator  of  the 
Currency,  and  Fiscal  Agent  of  the  Government. 


CHAPTER  V. 

Inf'.ation  on  the  Atlantic  Coast. 

HE  war  of  18 12  was  undertaken  in  the  belief  that  it  could  be 
conducted  by  loans,  and  without  the  necessity  of  taxation. 
Gallatin  was  relied  upon  as  a  competent  financier,  but  the  role 
which  had  been  assigned  to  him  he  was  not  willing  to  under- 
take. He  accepted  an  appointment  as  one  of  the  Peace  Com- 
missioners, and  departed  to  Europe.  As  soon  as  the  attempt  was  made 
to  obtain  resources  by  loans,  the  fact  was  developed  that  they  could  be 
obtained  only  in  the  Middle  States.  The  New  England  States  wet  s  strongly 
opposed  to  the  war.  In  the  South  there  was  no  superfluous  capital.  The 
Middle  States  were  enthusiastic  for  the  war  as  a  continuation  of  the  embargo 
system,  and  a  "protection  to  domestic  industry."  The  stringent  measures 
which  were  taken  to  prevent  importations,  as  a  war  measure,  cut  off  the 
revenue.  The  loans  met  with  only  slight  success,  and  the  real  financial 
resource  consisted  in  treasury  notes,  bearing  five  and  two-fifths  per  cent, 
interest.  These  at  once  stimulated  banking  issues  in  the  Middle  States. 
Campbell,  Secretary  of  the  Treasury,  in  1813,  wanted  the  exportation  of 
specie  forbidden,  believing  the  banks  would  then  loan  to  the  government 
more  freely,  and  the  President  recommended  it  in  a  message,  but  Congress 
would  not  adopt  it. 

In  order  to  supply  the  place  of  one  bank  with  $10  millions  capital,  120 


,1  H 


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I 


KH 


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ill 


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I 


64 


/f  Hf STORY  OF  BANKING. 


banks  with  $30  millions  capital  were  created,  according  to  the  best  statistics 
we  have,  between  181 1  and  181  s.  A  few  banks  in  Maine  suspended  early 
in  18 14,  and  the  three  banks  of  New  Orleans  in  April.  The  English  having 
invaded  the  District  of  Columbia  and  burned  Washington,  in  August,  the 
District  banks  suspended.  Those  of  Philadelphia  followed  on  the  30th,  and 
the  other  banks  of  the  Middle  States  immediately  afterward.  In  explanation  of 
this  action  of  the  banks,  it  is  stated  that  a  large  amount  of  English  govern- 
ment bills  had  been  sold  here  at  a  very  heavy  discount,  in  his  report  of 
February  12,  1820,  in  which  he  reviewed  the  financial  history  of  the  last 
eight  years,  Secretary  Crawford  attributed  the  suspension  to  bank  inflation, 
small  notes  banishing  specie,  and  accommodation  paper.  Isaac  Bronson 
attributed  it  to  the  anomalous  state  of  things  produced  by  the  war,  cutting 
off  intercourse,  so  that  inflation  produced  no  demand  for  export.* 

From  the  time  of  this  suspension  the  banks  of  the  Middle  States  entered 
upon  a  career  of  reckless  increase  of  their  issues  stimulated  by  the  public 
loans.  "It  is  impossible,"  said  Crawford,  "to  imagine  a  currency  more 
vicious  than  that  which  depends  upon  the  will  of  nearly  four  hundred  banks, 
entirely  independent  of  each  other,  when  released  from  all  restraint  against 
excessive  issues." 

The  banks  of  New  York  City  agreed  to  take  each  others'  notes  and  pay 
interest  on  debtor  balances  monthly.  No  bank  was  to  increase  its  loans 
unless  bound  to  lend  to  the  State,  and  the  debtor  banks  were  to  diminish 
their  discounts  when  the  general  committee  of  the  banks  should  recommend 
that  this  be  done.f 

The  notes  of  the  Connecticut  banks  disappeared  from  circulation  and 
those  of  the  suspended  banks  further  south  took  their  place.  "At  a  special 
session,  January,  1815,  the  General  Assembly  [of  Connecticut]  empowered 
each  incorporated  bank  in  the  State  to  issue  bills  to  the  amount  of  one-half 
the  actually  paid  capital,  receivable  for  all  debts  due  the  same,  and  payable 
in  specie  on  demand  two  years  after  the  close  of  the  war.  Presidents  and 
cashiers  were  to  make  statements  semi-annually  to  the  General  Assembly 
of  the  amounts  outstanding  at  the  time  of  such  returns.  In  October,  1814, 
the  General  Assembly  had  authorized  them  to  issue  promisory  notes  of  less 
denomination  than  $1  for  the  payment  of  money  only." 

"Our  banks  now  put  out  bills  under  two  forms,  the  first  promising  to 

pay  the  bearer dollars  in  notes  of  New  York  banks,  on  demand  at  the 

bank  in  New  York,  or  in   specie  two  years  after  the  war;  and  the 

second  promising  to  pay  the  bearer dollars  two  years  after  the  war. 

Both  were  receivable  for  all  debts  due  the  several  institutions  issuing  the 
same.  The  public  named  them  'facilities.'  Fractional  notes  ranging  from 
six  and  a  quarter  to  fifty  cents  were  also  freely  injected  into  the  currency. 
Individuals  and  corporations,  barbers  and  bartenders,  as  well  as  manufac- 
turers and  capitalists,  the  solvent  and  the  insolvent,  further  variegated  the 


*  3  Raguet's  Register,  u.    (18)2). 


t  PublicQla;  Letter  to  A.  Gallatin,  1815,  in  t,  Examiner,  8. 


INFLATION  ON  THE  ATLANTIC  COAST. 


6s 


assortment  of 'shinplasters'  by  liberal  contributions,  some  professing  to  call 
for  money  and  others  for  services." 

"At  the  May  session  of  1815  the  power  granted  to  the  banks  to  emit 
post-notes  payable  two  years  after  the  end  of  the  war  was  made  to  cease 
and  determine  from  the  first  day  of  January,  1816.  The  issue  by  any  unau- 
thorized person,  persons,  or  corporation  of  paper  intended  to  pass  in  lieu  of 
money  was  prohibited  under  heavy  penalties."* 

The  southwestern  part  of  New  England  did  not,  therefore,  escape  the 
contagion. 

The  currencies  of  the  various  parts  of  the  Union  at  once  began  to  fall  to 
different  stages  of  depreciation,  and  the  internal  exchanges  were  thrown  into 
confusion  because  the  quotation  contained  the  depreciation. 

In  some  respects  the  period  on  the  study  of  which  we  are  now  entering 
is  without  a  parallel.  The  question  uppermost  in  a  man's  mind  in  regard  to 
whatever  is  offered  as  a  circulating  medium  is:  Will  it  pass?  That  means: 
is  it  the  money  of  account,  in  which  prices  and  contracts  are  set,  so  that  it 
will  be  accepted  as  cash,  without  discount,  dispute,  or  delay  }  if  the  money 
of  account  is  specie,  paper  notes  may  still  be  cash ;  namely,  if  they  are  at 
once  exchangeable  for  the  coins  whose  name  the^  bear.  If  they  are  not  so 
exchangeable,  they  degenerate  at  once  into  negotiable  instruments,  and  are 
not  cash.  If  they  fall  to  a  uniform  discount,  as  negotiable  instruments,  they 
may  become  the  money  of  account,  superseding  specie.  Then  they  are  cash 
again.  The  discount  is  included  and  accounted  for  in  the  prices  and  terms 
of  contract.  People  who  are  unfamiliar  with  affairs  then  do  not  know  that 
there  is  any  discount  or  any  negotiation.  If  the  discount  of  the  paper  varies, 
an  insurance  rate  is  included  in  the  prices,  etc.,  but,  as  it  is  uniform,  it  is 
unnoticed.  These  latter  suppositions  were  fulfilled  in  the  case  of  our  paper 
money  after  the  civil  war.  It  was  our  money  of  account,  or  "current  funds," 
and  was  cash.  This  is  why  people  came  to  think  that  it  was  money  and 
lost  the  sense  of  its  relation  to  money.  In  1814  the  notes  of  each  bank  were 
at  a  different  rate  of  discount.  Each  town  or  county  accepted  some  one  kind  as 
its  local  money  of  account.  Others  in  the  same  place  and  groups  of  them  in 
other  districts  were  quoted  with  reference  to  that  one,  but  the  great  charac- 
teristic of  the  period  was,  that  the  varieties  were  so  great,  and  the  badness 
of  all  was  so  extreme,  that  there  was  no  money  of  account.  The  state  of 
things  is  very  difficult  to  understand  and  realize,  and  is  almost  incredible. 
It  was  the  differences  at  the  same  time  between  the  existing  media  of 
exchange  which  produced  the  result  that  there  was  no  medium.  Exchanges 
were  made  by  barter  of  such  paper  as  one  had  for  the  goods  which  the  other 
had. 

Specie  became  very  scarce  in  the  Middle  States  and  remittances  could 
hardly  be  made.  We  are  told,  however,  that  the  places  where  the  currency 
was  worst  were  the  best  places  at  which  to  import  foreign  commodities; 


I 


*  Woodward,  Hartford  Bank,  115. 


)n 


r 


f6 


A  HISTORY  OF  BANKING. 


\.^^\. 


no  doubt  because  there  was  a  double  transaction  in  converting  the  currency 
obtained,  and  bringing  home  the  proceeds  in  specie  or  in  government 
securities. 

The  Treasury,  as  we  have  seen,  after  the  expiration  of  the  charter  of  the 
Bank  of  the  United  States,  received  duties  in  the  bank  notes  of  the  port  at 
which  the  goods  were  entered.  Consequently  there  was  a  further  advantage 
to  import  commodities  at  the  port  of  entry  where  the  currency  was  most 
depreciated.  Henc"  Philadelphia  and  Baltimore  enjoyed  a  period  of  great 
apparent  prosperity,  lor,  in  July,  1815,  New  York  paper  was  at  14  per  cent, 
discount,  and  Baltimore  paper  at  16  percent,  discount,  compared  with  Boston 
paper  or  silver.  The  discount  on  southern  and  western  paper,  at  that  time, 
was  small. 

The  government  suffered  the  greatest  loss  and  embarrassment  from  the 
derangement  of  the  currency.  Boston  was  the  money  market  of  the  country, 
and  there  were  heavy  disbursements  there,  which  must  all  be  made  at  specie 
par;  but  there  was  no  revenue  there,  all  being  obtained  further  south  in 
depreciated  notes,  if  any  one  had  payments  to  make  at  Boston  to  the 
Treasury,  he  bought  notes  of  the  suspended  banks  to  the  southward  with 
which  to  do  it.  Hence  Secretary  Crawford  stated  that  "  unt'l  the  resumption 
of  specie  payments  in  the  early  part  of  1817,  treasury  notes,  and  the  notes  of 
the  banks  which  had  suspended  payment,  formed  the  great  mass  of  cir- 
culation in  the  eastern  parts  of  the  Union.  Specie,  or  the  notes  of  hanks 
which  continued  to  pay  specie,  formed  no  part  of  the  receipts  of  the  govern- 
ment in  Boston,  and  the  districts  east  of  that  town,  until  about  the  close  of 
the  year  1816." 

June  15,  181 5,  the  Secretary  of  the  Treasury  gave  notice  that  he  would 
not  receive  the  notes  of  any  non-specie  paying  banks  which  did  not  take 
treasury  notes  at  par  with  their  own  notes.  If  the  notes  of  any  bank  stood 
higher  than  treasury  notes,  it  refused  to  receive  the  latttr  at  par.  Such  b.inks 
were  in  general  the  creditor  banks,  and  the  best  ones,  and  the  Secreiary's 
rule  led  him  to  refuse  their  notes  while  he  accepted  those  of  the  worse  banks. 
August  I5tl:  he  published  a  list  of  the  banks  whose  notes  he  would  no  longer 
receive.  He  said  that  the  p.oposition  which  he  had  made  to  the  banks  had 
been  generally  acceded  to  by  them  "with  the  exception  of  those  which  pay 
their  crvn  notes  on  demand,  in  gold  or  silver,  and  those  who  are  specified  in 
the  subjoined  list."  The  specie  paying  banks  of  New  England  so  far  as  they 
received  treasury  notes,  suffered  tor  it,  and  were  afterwards  petitioners  for 
redress.* 

Advertisements  were  made  by  the  Secretary  for  subscriptions  to  a  public 
ban,  Mar  h  10th,  the  object  of  which  was  tc  fund  treasury  notes  and  get  a 
"supply  of  the  local  currencies  of  different  places  in  some  proportion  tu  the 
probab'e  amour.t  of  the  local  demard."  Up  to  April  igth,  he  received  no  bids 
ove--  89,  and  some  as  low  as  75.     "  Upon  this  cxpe'iment,"  he  says,  in  his 


*  4  Folio  Finance,  ioj6,  1033. 


I- 


INFLATION  ON  THE  ATLANTIC  COAST. 


# 


.1 


report  for  l8is,  "  it  was  seen  at  once  that  the  new  situation  of  the  Trea:;ury 
required  a  new  course  of  proceeding,  and  that  neither  the  justice  due  to  the 
equal  rights  of  the  public  creditors,  nor  a  fair  estimate  of  the  value  of  the 
public  property,  nor  an  honorable  regard  for  the  public  credit  would  permit 
the  loan  to  assume  the  shape  and  character  of  a  scramble,  subservient  to  the 
speculations  which  create  what  is  called  a  market  price,  and  shifting  in  every 
town  and  village  of  every  State,  according  to  the  arbitrary  fluctuations  of 
what  is  called  the  difference  of  exchange."  He,  therefore,  fixed  the  price  of 
his  stocks  at  95,  not  specifying  in  what,  and  he  gives  a  table  of  the  sub- 
scriptions received  at  different  places,  distinguishing  subscriptions  in  money 
(/.  e.  the  bank  note  currency  of  the  place)  from  subscriptions  in  treasury  notes. 
The  table  shows  how  little  "arbitrary  "  was  the  difference  of  exchange.  The 
quotations  on  the  19th  of  August  were  as  follows:  at  Boston,  treasury  notes, 
fourteen  and  fourteen  and  one-half  discount,  local  currency  at  par  of  specie; 
at  New  York,  treasury  notes,  par;  specie  12  per  cent,  premium  in  local  cur- 
rency; at  Philadelphia,  treasury  notes,  par,  specie  15  percent,  premium;  at 
Baltimore,  treasury  notes  three  and  four  premium,  Boston  notes  16  premium, 
Pniladelphia  notes  two  premium,  New  York  notes  seven  premium,  specie  i6 
premium ;  at  Washington  about  the  same  as  at  Baltimore.  Turning  now  to  the 
Secretary's  table,  we  find  that  he  received  his  largest  subscriptions  at  Wash- 
ington, Bahimore,  and  Philadelphia,  and  less  and  less  further  East.  At 
Washington,  only  one-eighth  of  the  subscriptions  were  paid  in  treasury 
notes,  the  rest  in  the  local  currency.  At  Baltimore  not  quite  one-third  were 
paid  in  treasury  notes,  the  rest  in  currency.  At  Philadelphia  nearly  one-half 
were  paid  in  treasury  notes.  At  New  York  very  nearly  all  were  paid  in 
treasury  notes.  Elsewhere  nothing  but  treasury  notes  were  received.  The 
case  is  a  remarkably  good  one  to  prove  how  absolutely  certain  the  facts  of 
value  are  to  vindicate  themselves  against  any  attempt  to  juggle  w  ilh  them. 

It  must  be  added  that,  as  between  different  bank  notes,  the  Treasury 
received  tiie  '.vorsr.  In  a  Treasury  report  of  February  12,  1821,  it  was  stated 
that  there  were  then  $818,500  to  the  credit  of  the  Treasury,  as  special  depos- 
its in  suspended  banks.  The  Treasury  also  held  $482  in  counterfeits.  In  a 
report  of  February  i,  1858,  it  was  stated  that  the  amount  Cn  bank  notes 
received  between  1814  and  1817,  and  still  on  hand  in  183  >,  amounted  to 
$1713,470,  and  that  "  the  direct  loss  to  the  United  States  on  tills  that  were 
depreciated  but  were  still  received  and  paid  out  again  on  public  account 
probably  equaled  five  or  six  millions  of  dollars.  "* 

In  December,  1816,  before  the  Bank  of  the  'Jnited  States  went  into  opera- 
tion, the  Secretary  had  to  borrow  $soo,ooo  from  it,  with  which  to  pav 
interest  at  Boston.  In  his  report  for  t8i6,  he  complained  that  he  cou'd  not 
tell  which  notes  were  at  par  and  which  not.  The  depositories  would  only 
.'.ccept  the  notes  which  he  had  received,  as  special  deposits,  ard  he  was 
obliged  to  Keep  four  accounts,  "cash,"  {/.  c.  loc;.l  currency),  special  depos- 


SI 


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68 


A  HISTORY  OF  BANKING. 


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its,  treasury  notes  bearing  interest,  and  treasury  notes  not  bearing  interest. 
He  too  had  no  money  of  account. 

Th.^  financial  exigencies  had  become  so  great,  even  in  1813,  that  the 
minds  of  men  began  to  turn  once  more  to  a  national  bunk.  There  were 
fears  about  the  proceedings  of  the  local  banks.  The  very  nien  who  had  so 
,  jauntily  declared,  in  the  debate  on  the  renewal  of  the  charter  of  the  United 
States  Bank,  that  the  fiscal  affairs  of  the  government  could  be  carried  on 
quite  as  well  by  the  local  banks,  saw  already  grave  reason  to  doubt  whether 
that  would  prove  to  be  true.  The  old  dilemma  was  renewed  between  the 
social  sentiments  and  political  opinions  hostile  to  the  bank  on  the  one  side, 
and  the  financial  exigency  on  the  other.  It  was  not  at  all  on  account  of  a 
change  of  political  opinion  about  a  bank  in  the  administration  party  that  1' 
project  of  a  national  bank  was  taken  up  again ;  but,  against  their  will,  ana 
with  deep  misgiving  and  dissatisfaction,  they  turned  back  to  that  device. 

The  subject  of  a  national  bank  was  brought  up  in  Congicis,  January  4, 
18 14,  by  a  petition  from  New  York  City,  but  nothing  was  done  at  that 
session  except  to  appoint  a  Select  Committee.  As  soon  as  Congress 
re-assembled  in  September,  the  subject  was  taken  up  again,  the  finances 
being  in  a  desperate  condition.  Secretary  Dallas  proposed  a  national  bank, 
October  14th,  the  leading  motive  being  to  obtain  financial  resources.  In 
order  to  serve  this  purpose  in  the  way  desired  by  the  administration,  the 
proposed  bank  must  be  a  non-specie-paying  bank.  One  bill  was  completed 
and  brought  to  a  vote  in  the  House,  January  2,  181 5,  when  it  was  defeated 
by  the  double  vote  of  the  Speaker,  Cheves.  Then,  having  been  re-moulded, 
it  was  passed,  120  to  38,  containing  a  provision  against  suspension.  The 
Senate  restored  the  provision  for  suspension,  but  afterwards  receded  and  the 
bill  was  passed  on  the  20th,  for  a  bank  which  might  not  make  loans  to  the 
government  and  might  not  suspend  ;  that  is  to  say,  it  created  a  national 
bank  of  a  general  and  permanent  character,  suitable  for  peace  times,  and  not 
such  a  machine  for  war  finance  as  the  administration  wanted. 

President  Madison  vetoed  tne  till,  because  the  bank,  as  provided  for, 
"cannot  be  relied  on  during  the  war  to  provide  a  circulating  medium  or 
loans  or  anticipations  of  revenue,"  on  account  of  the  clauses  forbidding  it  to 
make  loan^  or  suspend.  In  this  history  we  have  seen  Madison  vote  against 
the  Bank  of  North  Amcica,  furnish  the  leading  argument  against  the  consti- 
tutionality of  a  Bank  of  the  United  States,  in  1791,  and  the  one  which  was 
most  relied  on  by  the  opponents  of  the  re-charter  in  181 1.  Now,  as  President 
of  the  United  States,  in  the  midst  of  a  war,  his  action  must  be  taken  to 
mean  that  he  not  only  thought  a  bank  constitutional  if  it  was  a  sound  institution, 
but  even  if  it  was  to  begin  under  a  suspension  of  specie  payments.  The 
only  excuse  M'as  that  such  an  institution  was  "necessary"  to  the  purposes 
of  the  Stale — that  is,  that  it  was  constitutional  in  such  form  as  the  Legisla- 
ture or  the  administration,  under  the  circumstances,  might  find  necessary. 
The  position  of  the  Senate  had  been  that  the  chief  reason  for  wanting  the 
bank  was  to  get  loans  from  it  for  the  war.     If  these  were  obtained,  it  could 


INFLATION  ON  THE  ATLANTIC  COAST. 


69 


not  maintain  specie  payments.  Why,  then,  mal<e  it  at  ail  without  a  provis- 
ion for  suspension  ?  This  leaves  us  face  to  face  with  the  fact  that  the  mis- 
management of  the  war  finances  was  forcing  the  federal  government  to  set 
I'p  a  paper  money  machine. 

February  6th,  another  bill  was  introduced  in  the  Senate  for  a  bank  with 
$So  millions  capital,  $20  millions  in  treasury  notes  fundable  in  six  per  cent, 
stock,  $15  millions  in  six  per  cent,  stock,  $5  millions  in  specie,  $10  millions  by 
the  government  in  four  per  cent,  stock,  it  was  not  to  pay  its  notes 
in  specie  until  the  last  installment  on  the  capital  was  paid.  There  were 
to  be  five  equal  installments,  the  first  payable  April  ist,  and  the  four  others 
quarterly  thereafter.  Congress  might  at  any  time  authorize  a  suspension 
of  specie  payments  on  petition  of  the  directors.  February  loth,  the  Senate 
refused  to  strike  out  the  last  provision  and  passed  the  bill.  February  17th, 
the  day  on  which  the  news  of  the  signing  of  the  treaty  of  Ghent  arrived, 
and  as  it  appears,  under  some  premonitions  of  that  news,  the  bill  was  indefi- 
nitely postponed  in  the  House.  Jacob  Barker,  who  had  a  great  speculation 
on  this  project,  was  in  Washington  at  the  time.  He  says  that  the  bill  had 
passed  both  Houses,  and  lay  on  the  clerk's  table  foi  assent  to  be  given  by  the 
Senate  to  a  change  in  respect  to  the  date  of  organization,  "when  an 
express  on  its  way  to  Alexandria  for  a  speculation  in  flour  passed  through 
Washington  with  the  news  of  peace,  which  so  elated  Congress  that  the 
members  left  the::  seats  without  w  iting  for  an  adjournment,  and  they 
could  not  again  be  induced  to  consider  the  question  of  a  national  bank  dur- 
ing that  session.  This  bill  was  framed  with  a  view  to  induce  moneyed 
men  to  subscribe  to  its  stock.  It  was  the  best  ever  devised.  It  did  not 
impose  any  bonus,  and  if  it  had  then  become  a  law  would  have  worked 
wonders."  *  *  *  "Had  the  news  been  delayed  a  single  hour,  the  bill 
would  have  passed  and  its  stock  would  have  been  worth  100  per  cent,  pre- 
mium."* 

At  this  point,  then,  all  demand  for  a  national  bank  as  a  means  of  war 
finance  ceased,  but  a  new  demand  arose  for  it  to  regulate  the  currency, 
which  had  now  fallen  into  great  disorder.  We  lay  emphasis  here  on  the 
story  of  the  legislative  'irth  of  the  second  Bank  of  the  United  States, 
the  circumstances  whici  led  to  it,  the  motives  which  impelled  the  actors, 
and  the  necessities  which  gave  the  controlling  ideas,  because  this  is  all- 
important  with  respeci  to  the  character  of  the  institution  which  was  pro- 
duced. This  has  been  sufficiently  apparent  already  in  the  struggle  over  the 
question  whether  the  bank,  for  war  finance,  shou'd  si'  ^'=""■1  or  not.  We 
shall  hear  no  more  of  any  suggestion  that  the  bani^,  if  (  .  ..t-:  J,  should  con- 
template suspension  as  a  possibility.  It  was  as  a  regulator  of  the  currency 
above  everything  else  that  a  bank  was  now  called  for,  and  the  motive  for  it 
was  weariness,  contempt,  and  disgust,  in  regard  to  the  local  banks  and  the 
currency  provided  by  them. 

•  Lite  of  Jicoh  Marker,  125. 


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70 


A  HISTORY  OF  BANKING. 


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One  of  the  chief  reasons  given  by  the  opponents  of  the  old  Bank  of  the 
United  States  for  winding  it  up  was  to  find  out  whether  it  had  been  useful 
or  not.  In  1815  it  was  almost  universally  believed  that  this  question  had 
been  fully  answered  by  experience,  and  that  the  experience  had  been  costly. 

During  the  year  181 5,  the  bank  note  currency  became  worse  and  worse. 
The  story  is  told  of  a  "little  Frenchman  and  his  bank  notes,"  who  entered 
the  country  at  Savannah  with  specie  and  travelled  up  the  coast  to  Boston. 
He  found  his  "  money"  all  the  time  melting  away.  His  American  adviser 
told  him  that  if  he  would  begin  at  Boston  and  go  back  again,  he  could  recover 
it  all.  The  Frenchman,  "holding  up  a  parcel  of  ragged,  dirty  bills,  pregnant 
with  filth  and  disease,"  said  :  "  Voila  !  it's  like  making  a  difference  between 
the  rags  of  one  beggar  and  the  rags  of  another."* 

Another  traveller  gives  his  own  experience  :  "Such  was  the  state  of  the 
currency  that,  in  New  Jersey,  I  met  with  an  instance  where  a  one  dollar 
note  1  had  taken  in  change,  which  was  current  on  one  side  of  a  turnpike  gate, 
would  not  pass  at  an  hundred  yards'  distance  on  the  other  side."t 

The  following  case  illustrates  the  difficulty  of  enforcing  rights  against  a 
bank :  A  gentleman  of  Richmond  wanted  to  enforce  the  payment  of  ten  notes 
for  $100  each  against  the  Bank  of  Virginia,  in  181 5,  but  he  could  not  get  a 
lawyer  to  take  his  jase  until  the  following  year.  The  president  refused  to 
obey  the  summons  of  the  Court.  The  Sheriff  brought  him  by  force  to 
Court,  and,  as  the  tank  still  refused  to  pay,  the  Sheriff  closed  its  doors.  The 
bank  then  brought  suit  for  damages  against  the  plaintiff,  and  instituted  pro- 
ceedings against  the  Sheriff.  It  re-opened  its  doors  and  went  on  with  its 
business.  No  means  were  found  to  make  it  amenable  to  law.  The 
"Richmond  Enquirer"  said  that  it  was  perfectly  sound  and  able  to  resume, 
but  held  its  opinion  that  it  was  not  expedient  to  do  so  until  others  did.  J 

Another  cause  of  irritation  with  the  banks  was  that  they  were  held  to 
have  failed  completely  as  agents  for  the  fiscal  operations  of  the  federal 
government.  Gouge  quotes  a  statement  from  a  pamphlet  by  "A  Friendly 
Monitor,"  attributed  to  W.  Jones,  first  pres'dent  of  the  Bank  of  the  United 
States,  that  the  State  banks,  depositories  of  the  public  money,  refused  to 
make  the  necessary  transfers  for  the  government  expenditures,  and  fina.ly 
refused  to  pay  the  b^l-'nces  due  by  them,  except  in  the  ordinary  course  of 
public  expenditure  at  the  places  in  which  they  were,  claiming  indulgence 
on  various  pretexts,  while  they  held  the  paper  of  the  other  banks,  which 
had  come  to  them  in  payment  of  the  public  deposits,  and  prevented  those 
banks  from  resuming.  § 

The  President,  in  his  message  for  181  s,  urged  Congress  to  provide  for  a 
"uniform"  currency,  either  by  a  national  bank  or  by  government  issues. 
The  Committee  on  Currency  asked  Secretary  Dallas,  December  2^d.  for  his 
opinion  as  to  the  amount  of  capital,  the  form  of  government,  the  privileges, 
and  the  organization  of  a  national  bank,   and  as  to  the  amount  of  bonus 


I 


I 


*  Gouge  ;  Journal  of  Banking,  259. 


t  Thomas  ;  Reminiscences,  84. 
g  Gouge,  Journal  of  Banking,  284. 


X  9  Niles,  370. 


INFLATION  ON  THE  ATLANTIC  COAST. 


which  the  bank  ought  to  pay  and  the  measures  by  which  it  might  be  aided 
in  restoring  specie  payments.  He  replied  the  next  day  by  a  sketch  of  the 
bank  as  subsequently  established.  As  to  resumption,  he  thought  that  the 
best  w  -y  to  assist  it,  would  be  for  the  Treasury  to  refuse  to  receive  notes  of 
any  bar.k  which  did  not  pay  specie  after  December  31,  18 16.  He  declared 
resumption  impossible  without  a  "contraction  "  of  the  existing  issues. 

The  charter  of  the  Bank  of  the  United  States  became  a  law  April  10, 
18 16.  It  passed  the  House,  80  to  71,  and  the  Senate,  22  to  \2.  The  federal- 
ist opposition  at  this  session  was  due  to  the  fact  that  the  Bank  would  be  in 
the  hands  of  the  opposite  party.  An  amendment  to  establish  the  Bank  in 
New  York  City  was  passed,  but  Dallas  obtained  a  reconsideration.  The 
New  York  members  held  a  conference  to  secure  its  location  at  New  York 
or  its  defeat;  but  one  of  the  New  York  City  members  said  that  he  had 
promised  the  administration  to  vote  for  the  Bank  and  that  he  should  do  so. 
Upon  this  the  effort  was  abandoned.* 

It  was  chartered  for  twenty  years.  Its  capital  was  to  be  $55  millions, 
$7  millions  in  specie,  $7  millions  by  the  United  States  in  five  per  cent,  stock, 
and  the  rest  in  specie  or  public  stocks  of  the  United  States.  It  was  to  pay  a 
bonus  of  $1,5  millions  in  three  installments  after  two,  three,  and  four  years. 
It  was  not  to  issue  notes  under  $5,  and  was  not  to  suspend  specie  payments 
under  a  penalty  of  12  per  cent.  There  were  to  be  twenty  directors  chosen 
by  the  stockholders,  and  five,  being  stockholders,  appointed  by  the  President 
of  the  United  States.  No  person  might  subscribe  over  3,000  shares,  unless 
the  total  subscription  should  be  less  than  $28  millions.  In  that  case,  one 
person  might  subscribe  the  deficiency.  The  subscriptions  were  to  be  paid 
in  three  installments:  i — At  the  time  of  subscribing,  $5  in  specie  and  %2<y  in 
specie  or  stock;  2 — Six  months  afterwards,  $10  in  specie  and  $25  in  specie 
or  stock;  3 — Six  months  later,  $10  in  specie  and  $25  in  specie  or  stock.  The 
Secretary  of  the  Treasury  might  at  any  time  redeem  the  public  stocks  in  the 
capital  of  the  Bank  at  the  rates  at  which  it  was  provided  that  they  should  be 
received  in  subscription;  namely,  the  six  per  cents  at  par;  three  per  cents  at 
65;  seven  per  cents  at  106. 51,  and  accrued  interest.  He  might  also  redeem  the 
five  per  cent,  stock  to  be  given  by  the  government  for  its  subscription.  The 
directors  were  to  be  chosen  annually  and  no  one  of  them  might  be  a  director 
in  any  other  bank.  The  Bank  was  to  commence  operations  when  the  second 
installment  was  paid.  The  stockholders  were  to  have  one  vote  for  one  share 
or  two  shares;  one  vote  for  every  two  shares  above  two  and  not  above  10;  one 
vote  for  every  four  shares  above  10  and  liot  exceeding  30;  one  vote  for  every 
six  shares  above  30  and  not  exceeding  00;  one  vote  for  every  eight  shares 
above  60  and  not  exceeding  100;  or  one  vote  for  every  10  shares  above  100; 
but  no  one  was  to  have  ovtr  thirty  votes.  Stockholders  actually  resident  in 
the  United  States  and  none  other  might  vote  by  proxy.  Five  of  the  elected 
directors  and  one  of  the  appointed  directors  were  to  go  out  each  year,  and 


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/I  HISTORY  OF  BANKING. 


no  one  might  be  a  director  more  than  three  years  out  of  four,  except  the 
president.  The  Bank  might  not  buy  public  stocks  nor  take  over  six  per  cent, 
for  loans.  It  was  forbidden  to  loan  the  United  States  more  than  $500,000,  or 
any  State  more  than  $50,000,  or  any  foreign  prince  or  state  anything.  It  was 
bound  to  transfer  public  funds  from  place  to  place  at  the  demand  of  the  Sec- 
retary, without  charging  for  difference  in  exchange.  Congress  was  to  charter 
no  other  bank  during  the  period  of  this  charter.  The  Bank  was  to  give  to 
the  Secretary  of  the  Treasury,  reports  of  its  condition  as  often  as  he  should 
require  them,  "  not  exceeding  once  a  week."  It  was  allowed  to  issue  post 
notes  for  not  less  than  $100,  having  not  more  than  sixty  days  to  run.  The 
directors  of  the  parent  Bank  appointed  the  officers  of  the  branches,  and  fixed 
their  compensation,  and  established  by-laws  for  them.  It  might  accept 
deposits  of  specie,  paying  not  more  than  one-half  of  one  per  cent,  for  them. 
It  was  bound  to  keep  in  separate  books  the  accounts  of  the  government  and 
of  private  individuals.  The  total  amount  of  its  debts,  exclusive  of  cash  de- 
posited, was  limited  to  the  amount  of  its  capital,  unless  Congress  should 
otherwise  allow. 

This  charter  was  evidently  imitated  from  Hamilton's  charter  of  the  first 
Bank  as  nearly  as  personal  and  party  pride  would  allow.  The  best  criticism 
on  it  will  be  its  history,  but  there  are  two  or  three  points  in  regard  to  it, 
which  produced  immediate  consequences.  The  country  was  suffering  from 
excessive  banking,  upon  which  this  Bank  was  to  act  as  a  check.  It  began 
with  a  very  large  capital  which  it  was  forced  to  employ.  In  the  course  of 
events  the  Secretary  found  the  revenues  of  1817  so  large  that  he  was  able  to 
redeem  $13  millions  of  the  public  debt  in  the  capital  of  the  Bank  during  that 
year.  The  Bank  was  therefore  forced  to  employ  this  large  sum  actively, 
even  if  it  had  been  content  otherwise  to  leave  it  quiescent  in  government 
stocks.  At  the  same  time,  it  became  the  creditor  of  the  State  banks  for  the 
vast  amount  of  their  notes,  with  which  the  Secretary  accomplished  that 
redemption.  This  put  it  in  the  power  of  the  Bank,  it  is  true,  to  exercise  the 
great  function,  for  which  it  had  been  created,  of  regulating  the  currency,  by 
exerting  great  pressure  on  the  State  banks.  It  could  force  them  to  retire 
their  issues  and  resume  specie  payments;  but  it  was  sure  to  arouse  angry 
opposition  and  complaint.  The  banks  had  no  desire  whatever  ;o  be  regu- 
lated. 

In  the  second  place,  if  ^he  plan  of  putting  public  stocks  in  the  capital 
had  had  very  little  ground  1.1  the  first  Bank,  it  had  none  in  the  second, 
after  the  war  was  over.  The  construction  of  the  Bank  on  this  plan  gave 
unnecessary  occasion  for  cavil  at  the  favor  shown  to  holders  of  government 
bonds. 

In  the  third  place,  there  was  no  reason  why  the  nation  should  hold  any 
stock  in  the  Bank.  The  government  itself,  being  destitute  of  capital  and 
involved  in  the  difficulties  of  disordered  finance,  although  it  was  no  longer 
compelled  to  find  means  for  heavy  war  expenditures,  the  example  of  creating 
a  gre.it  s*jck  note  with  which  to  buy  bank  stock,  repeating  the  oper-'tion 


i 


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INFLATION  ON  THE  ATLANTIC  COAST. 


1) 


which  it  had  performed  with  great  profit,  as  we  have  seen,  in  the  first  Bank.* 
It  made  a  note  at  five  per  cent.,  interest  payable  quarterly,  to  take  stock  in  a 
bank  which  could  not  be  expected  to  pay  over  seven  per  cent,  semi-annually. 
When  the  troubles  came  and  the  Bank  paid  no  dividend,  its  enemies  were 
fond  of  figuring  up  how  much  the  public  paid  annually  for  the  privilege  of 
being  a  stockholder.! 

This,  however,  only  touched  upon  the  profit  or  loss  of  the  arrangement, 
not  on  its  propriety.  When  the  government  gained  by  the  Bank,  as  it  did 
later,  private  individuals  naturally  asked  themselves  why  they  might  not,  by 
associating  themselves,  do  the  same.  Ten  men  who,  individually,  could 
not  have  borrowed  ten  dollars  apiece,  associated  themselves  into  a  "bank" 
and  by  circulation  and  deposits  borrowed  $100,000. 

In  the  fourth  place,  the  arrangement  about  voting  on  stock  in  the  Bank, 
although  it  was  universal  and  had  been  borrowed  from  England,  proved 
mischievous.  Some  gentlemen  at  Baltimore  who  had  had  great  experience 
in  organizing  financial  institutions  had  devised  the  plan  of  subscribing  by 
attorney.  George  Williams  a  government  director  took  1,172  shares  as 
attorney  in  the  name  of  i,  172  different  persons.  In  his  testimony  before  the 
Committee  of  18 19,  he  declared  that  this  was  a  common  procedure,  which 
indeed  it  was,  and  that  the  market  price  of  proxies  was  eleven  pence. 
Baltimore  took  in  all  40, 141  shares  on  is. 628  names,  and  got  22,137  votes 
out  of  77,759,  which  was  the  total  number  of  votes  which  all  the  stockholders 
were  entitled  to  under  the  rule,  taking  the  subscriptions  as  they  were  actually 
made.  The  clique  at  that  place  thus  took  less  than  one-seventh  of  the  shares 
and  got  over  one-fourth  of  the  votes.  At  Philadelphia,  where  one-third  of 
the  shares  were  taken,  only  two-ninths  of  the  votes  where  held. 

We  must  also  notice  that  the  public  expected  of  the  Bank  faultless  per- 
formance of  two  functions.  It  was  to  provide  a  uniform  currency  or  equalize 
the  exchanges,  and  it  was  to  collect  and  pay,  on  behalf  of  the  Treasury  of 
the  United  States,  at  all  points  and  without  delay.  Under  the  former  head,  it 
was  expected  not  only  to  furnish  notes  of  its  own  at  a  uniform  value  every- 
where, but  also  to  force  the  local  banks  to  come  to  an  equality  by  coming  to 
the  same  standard.  The  notion  of  equalizing  the  exchanges,  or  making  a 
uniform  currency  is  elusive  and  illusory.  What  people  meant  was  that  they 
wanted  to  be  able  to  put  a  note  in  a  letter  at  one  place  and  have  it  current  at 
par  of  specie  at  any  place  to  which  it  might  be  sent.  In  the  discussions 
which  arose  it  was  often  unclear  whether  it  was  expected  that  all  notes 
should  be  equally  valuable  at  all  places,  or  at  all  times,  or  all  equal  to  each 
other.  The  only  realizable  equality  was  that  all  should  be  brought  up  to 
specie  at  the  place  of  issue  and  redemption,  and  in  that  sense,  be  equal  to 
each  other.  The  more  intelligent  demand  on  the  Bank  was  that  it  should 
make  its  own  notes  a  universal  currency,  and  force  the  local  banks  every- 
where to  keep  theirs  up  to  par  with  those  of  the  Bank. 


•  See  page  49. 


1 30  Niles,  389 ;  21  Nlln,  335. 


I  ' 


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I  ;  ■  J 


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74 


A  HISTORY  OF  BANKING. 


T 


There  was  also  a  very  general  popular  expectation  that  it  would  do  more 
than  this,  and  would  do  away  with  any  rates  of  exchange,  properly  speak- 
ing, between  different  points.  Great  fault  was  found  with  it  for  charging 
for  drafts.  It  is  very  clear  that  too  much  was  expected  of  it  under  this  head. 
Considering  the  immense  extent  of  territory  over  which  its  nineteen  branches 
were  scattered,  and  the  difficulty,  delay,  and  expense,  of  transportation  and 
communication,  it  was  not  possible,  in  the  early  years  of  its  existence,  that 
it  should  do  what  was  expected  of  it  under  either  of  these  heads. 

The  Bank  had  also  to  contend  with  clamorous  demands  for  branches  at  a 
great  number  of  points,  with  all  the  familiar  phenomena  of  local  jealousy  and 
ambition. 

The  only  measure  which  was  at  once  adopted,  which  was  calculated  to 
enforce  specie  payment,  was  a  rule  in  regard  to  the  currency  which  the 
government  would  receive  for  its  dues.  Dallas  wrote  to  Calhoun,  March  19, 
18 16,  urging  that  Congress  should  designate  specie  or  its  equivalent  as  the 
only  currency  which  might  be  accepted  at  the  Treasury;  also  that  it  should 
forbid  the  deposit  of  public  funds  in  non-specie-paying  banks,  and  should 
lay  a  very  heavy  tax  on  any  bank  notes  which  were  not  redeemed  in  specie 
on  demand.  The  bank  interest  in  Congress  was  too  strong  to  allow  any 
such  stringent  measure  to  be  passed.  The  result  was  the  resolution  of  April 
29,  1816,  that  the  Secretary  should  take  measures,  as  soon  as  may  be,  to 
secure  payment  in  specie  or  United  States  Bank  notes,  or  treasury  notes,  or 
notes  of  specie  paying  banks,  and  that  nothing  else  ought  to  be  received 
after  February  20,  181 7.  This  took  from  the  Secretary  the  power,  after  the 
nominal  resumption  of  specie  payments,  to  reject  the  notes  of  banks  which 
pretended  to  pay  specie.  The  history  of  the  years  1817  to  1819,  as  far  as  the 
interests  of  the  federal  Treasury  were  concerned,  would  have  been  quite 
different  if  Dallas's  recommendation  had  been  adopted.  Matthew  Carey* 
objected  earnestly  to  this  resolution,  with  the  resumption  of  specie  payments 
which  it  contemplated.  He  declared  that  there  was  not  specie  enough  on 
hand  or  to  be  had  to  maintain  the  system  proposed.  He  wanted  specie  notes 
to  be  used  only  in  part,  and  for  the  rest  credit  notes,  by  which  the  bank 
should  pledge  itself  to  receive  the  notes  for  specified  sums  in  the  payment 
of  debts  to  itself. 

This  period  was,  considering  the  circumstances,  one  of  active  literary 
discussion  on  topics  of  currency,  and  Carey  was  one  of  the  most  active 
writers.  In  a  public  letter  to  Calhoun  on  resumption,  he  objected  to  it  until 
the  balance  of  trade  should  come  around  so  as  to  protect  the  specie  stock. 
He  objected  to  the  stamp  tax,  which,  as  we  have  seen,  Dallas  had  proposed 
to  be  laid  on  non-resuming  banks,  because  the  specie  stock  was  quite  inade- 
quate to  sustain  a  general  resumption.  In  his  Letters  to  the  Bank  Directors 
of  Philadelphia,  he  described  the  great  prosperity  of  18 16.  It  was  the  golden 
age  of  Philadelphia,     An  immense  business  was  done  with  great  profit, 

♦  Lssays,  167. 


INFLATION  ON  THE  ATLANTIC  COAST. 


75 


upon  bank  credit,  the  banks  being  very  liberal.  Superficial  observers  have 
blamed  them  for  too  free  loans,  over-issues,  and  over-trading.  These 
charges  were  highly  unjust.  They  were  only  to  be  blamed  for  too  great 
loans  to  some  individuals,  and  for  curtailing  their  loans  in  order  to  invest  in 
government  securities.  He  expected  the  national  bank  to  emancipate  men 
from  slavish  dependence  upon  the  local  banks  for  loans.* 

One  of  the  current  notions  of  the  time,  which  always  recurs  under  simi- 
lar circumstances,  was  that  it  was  the  specie  which  had  advanced  and  not 
the  paper  which  had  depreciated;  and  another  was  that  by  the  advance  of 
civilization  and  its  arts,  paper  had  superseded  specie  as  money.  These  no- 
tions were  very  wide-spread  in  England  at  the  time,  under  the  suspension 
of  specie  payments  by  the  Bank  of  England,  and  they  can  be  tr.tced  in  the 
writings  of  the  American  pamphleteers.  Of  the  former  notion,  Raguet  said 
that  it  was  beginning  to  be  abandoned  in  i8i6.f  Both  these  doctrines  were 
most  ably  expounded  by  Ur.  Bollmann  in  his  "  Plan  of  Money  Concerns."  In 
this  "Plan  '  he  maintained  that  the  general  government  ought  to  agree  to 
pay  the  interest  of  the  public  debt  in  com,  and  that  the  notes  of  the  national 
bank  ought  to  be  payable  on  demand  in  six  per  cent,  stock  at  par,  or  in 
specie  at  the  option  of  the  institution.  The  national  bank  ought  to  have  no 
branches,  but  to  be  the  bank  of  the  banks.  The  notes  of  all  the  banks  in 
any  one  State  should  be  made  convertible  on  demand  in  the  notes  of  one 
designated  central  bank,  and  the  notes  of  these  chief  State  banks  ought  to 
be  redeemable  in  notes  of  the  national  bank.  There  should  be  no  notes  of 
the  national  bank  under  $s,  and  said  notes  should  be  made  legal  tender. 
The  charter  of  the  Bank  of  the  United  States  was  published  in  time  for  him 
to  notice  it  in  a  postcript.  He  was  extremely  displeased  with  it.  "A 
volume  might  be  written  on  this  ill-judged  scheme." 

Carey  pronounced  Dr.  Bollmann's  plan  a  magnificent  one,  and  said:  "It 
would  be  a  sovereign  remedy  for  all  the  financial  difficulties  of  the  country.  "J 
That  plan  seems  to  have  influenced  the  minds  of  the  persons  who  invented 
the  Pennsylvania  "relief"  system  of  1841. § 

An  anonymous  writer  of  1819II  ridicules  the  notion  of  a  ^.'ck  of  circulating 
medium  urged  in  favor  of  banks  of  circulation.  "Everyone  ought  to,  and 
will,  receive  of  the  circulating  medium  that  quantity  which  he  is  entitled  to 
by  his  property  or  industry,  unless  it  is  diverted  from  its  natural  channels  by 
the  knavery  of  banking  Legislatures,  which  is  the  case  in  this  country."  He 
regarded  note-issuers  as  robbers. 

Dallas  issued  a  circular  July  22,  1816,  in  which  he  called  upon  the  banks, 
especially  those  of  the  Middle  States,  to  meet  the  Treasury  in  an  effort  to 
put  the  resolution  of  April  29th  into  effect.  He  proposed  that  the  banks 
should  agree  to  the  publication  by  the  Secretary  of  a  notice  that  he  would 
not  receive,  after  October  ist,  any  notes  of  any  bank  which  did  not  pay  its 
notes  for  five  dollars  or  less  in  specie,  and  that,  after  February  20,  1817,  the 


i 


'  rssays,  ibi . 


t  Report  on  the  Distress,  1820.  %  Letters  to  the  Directors  of  the  Banks,  1816. 

§  See  page  344,  li  Cause  and  Cure  of  Hard  Times,  12. 


I 


76 


A  HISTORY  OF  BANKING. 


\lh 


joint  resolution  should  be  the  rule  of  the  Departincnt.  August  6th,  a  meet- 
ing of  representatives  of  the  New  York,  F'hiladelphia,  and  Baltimore  banks 
was  held  at  Philadelphia,  at  which  it  was  voted  not  to  approve  of  any  such 
notification  by  the  Secretary,  and  to  express  to  him  the  opinion  that  resump- 
tion ought  not  to  be  attempted  before  July  i,  1817.  It  being  thus  clear  that 
nothing  could  be  obtained  from  the  banks  in  the  way  of  voluntary  co-opera- 
tion, the  Secretary  published  a  notice,  September  i::th,  that  the  Depart- 
ment would  receive  after  February  20,  1817,  only  the  currency  approved  in 
the  joint  resolution  of  April  29th.  The  fact  was  that  there  was  no  authority 
which  could  deal  with  the  banks.  W.  H.  Crawford,  of  Georgia,  became 
Secretary  of  the  Treasury,  October  22,  1816.  There  were  at  this  time  89  banks 
of  deposit.*  In  a  letter  to  the  Senate,  in  1823,!  Crawford  says  that,  when  he 
took  office,  the  Treasury  had  $1 1  millions  in  the  State  banks.  Urging  them 
to  join  the  Bank  of  the  United  States  in  resuming,  he  offered  not  to  draw 
on  them  before  July  i,  1817,  unless  his  receipts  should  prove  less  than  his 
expenditures,  which  there  was  no  reason  to  apprehend,  and  that  then  he 
would  only  draw  gradually  and  not  in  favor  of  the  Bank  of  the  United 
States,  unless  it  should  be  necessary  in  order  to  protect  that  bank  against 
the  State  banks.  They  refused.  Here  certainly  there  was  very  dainty  action 
with  regard  to  the  "removal  of  the  deposits."  His  further  correspondence 
with  them  shows  the  same  disposition  on  their  part,  and  the  same  lack  of 
authority  on  his  side.  J  No  such  insubordination  was  ever  manifested  by 
either  Bank  of  the  United  States  as  characterized  the  State  banks  in  the 
dealings  of  the  government  with  them. 

Subscriptions  for  the  stock  of  the  Bank  of  the  United  States  were  opened 
at  various  points  July  i,  1816.  When  the  reports  were  received,  it  was 
found  that  the  subscriptions  fell  short  of  the  $28  millions  open  to  the  public 
by  $3,038,300.  Stephen  Girard  subscribed  this  sum.  The  Secretary  of  the 
Treasury  informed  the  Commissioners  at  Philadelphia,  August  i6th,  that  the 
stock  had  been  subscribed,  and  recommended  them  to  proceed  with  the 
necessary  preparations  for  opening  the  bank. 

It  has  been  said  above  that  the  public  conception  of  the  way  in  which 
this  bank  was  to  bring  about  resumption  and  "equalization  of  the 
exchanges  "  was  very  vague  ;  but  the  fear  in  the  State  banks  that  in  some 
way  or  other  it  would  force  resumption  was  also  vague,  and  their  reduction 
of  their  liabilities,  with  an  improvement  in  the  exchanges,  commenced  from 
the  time  that  the  bank  stock  was  subscribed.  The  banks  held  large  amounts 
of  public  stock,  as  we  have  seen.  These  they  were  unwilling  to  dispose  of 
for  the  reduction  of  their  issues,  an«.  some  complaints  arose  that  they  con- 
fined their  reductions  entirely  to  their  discounts.  Some  of  them  had  lost  on 
public  stocks  in  1814,  and  as  those  securities  were  now  rising,  it  was  a  good 
investment  to  hold  them.  These  bank  contractions  arrested  the  specula- 
tions which  were  in   progress,    which    accounts  for    Carey's  complaint. 


•  3  Folio  Finance,  719. 


t  4  Folio  Finance,  366, 


t  Ibid.,  494, 


l'«l 


INFLATION  ON  THE  ATLANTIC  COAST, 


11 


Others  complained  far  louder  than  he.  Virginia  tried  to  force  resumption 
by  a  State  law,  but  the  opposition  prevailed  to  secure  a  postponement  of  the 
day  set  and,  subsequently,  a  return  to  inflation.  However,  in  the  latter 
part  of  1816,  no  crisis  or  panic  at  all  occurred.  No  evidence  of  distress  in 
the  business  of  the  country  appeared.  The  exchanges  steadily  improved 
down  to  the  day  fixed  for  resumption.  At  the  end  of  July,  specie  was  at 
par  at  Boston,  at  five  per  cent,  premium  at  New  York,  at  eleven  or  twelve 
per  cent,  premium  at  Philadelphia,  at  fourteen  or  fifteen  per  cent,  premium 
at  Baltimore.  Southern  and  western  notes  were  generally  at  a  discount  of 
about  the  cost  of  shipping  specie  from  the  place  at  which  they  were  issued 
to  the  place  at  which  the  quotation  was  made.  In  September,  it  was 
announced  that  the  New  York  banks  were  paying  specie.* 

In  November,  the  comparative  quotations  of  public  stock  show  that  the 
currency  of  Boston  and  Charleston  was  at  par,  that  of  New  York,  at  one  and 
a-half  per  cent,  discount,  that  of  Philadelphia  at  six  per  cent,  discount,  and 
that  of  Baltimore  at  nine  per  cent,  discount.  A  Treasury  circular  was  issued 
January  28,  1817,  to  the  banks  of  Pennsylvania,  Delaware,  and  Maryland, 
stating  that  the  Bank  of  the  United  States  had  been  authorized  to  receive  the 
public  deposits  in  those  banks,  the  manner  of  transfer  being  left  to  that  Bank.f 
February  i,  18 17,  the  banks  of  New  York,  Philadelphia,  and  Baltimore  agreed 
to  resume  on  the  20th  of  February,  the  day  which  the  Treasury  Department 
had  proposed  and  always  adhered  to,  the  Bank  of  the  United  States  promising 
not  to  call  on  them  for  balances  until  after  it  should  have  discounted  for 
individuals  :;t  New  York  $2  millions,  at  Philadelphia  $2  millions,  at  Baltimore 
$1.5  millions  and  in  Virginia  $soo,ooo.  February  22nd,  the  quotations  of  the 
exchanges  were  at  New  York,  in  the  local  currency,  Boston  one  premium; 
Philadelphia  par  to  one-quarter  discount;  Baltimore  three-quarters  discount; 
Virginia  and  North  Carolina  one-half  discount;  South  Carolina  and  Georgia 
par;  New  Orleans  two  discount. 

During  the  whole  of  the  Fall  and  Winter,  the  foreign  exchanges  were 
favorable  and  silver  was  imported  in  great  amount.  It  must  be  remembered 
that  irredeemable  paper  was  in  use  at  this  time  nearly  all  over  Europe,  except 
in  France.  The  English  bank  notes  were  depreciated  from  six  per  cent,  to 
ten  per  cent. ,  although  rapidly  improving  during  this  year  by  the  destruction  of 
large  numbers  of  country  banks.  This  depreciation  abroad  made  it  easier  to 
draw  specie  to  America. 

The  important  point  now,  for  our  purpose,  is,  that  on  the  day  appointed 
for  resumption,  February  20,  18 17,  the  currency  had  been,  in  fact,  brought 
to  specie  par  all  over  the  country.  To  secure  resumption  it  was  only 
necessary  to  still  further  withdraw  bank  notes,  which  would  have  been 
replaced  by  silver,  and  would  have  been  no  contraction. 

The  Bank  of  the  United  States  was  organized  November  1,  1816.  Ten 
of  the  elected  directors  were  federalists  and  ten  republicans.     The  President 


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78 


A  HISTORY  OF  BANKING. 


appointed  five  republicans.  November  28th,  Niies's  Register  reported: 
"  United  States  Bank  scrip  has  sold  at  Philadelphia  for  $42. 30  on  the  original 
installment.  Speculation  is  the  order  of  the  day."  Such  indeed  was  the  fact. 
Stock  jobbing  with  the  shares  of  the  Bank  began  from  the  first  subscription 
and  was  carried  on  most  vigorously  by  the  officers  and  directors  of  the  Bank. 

The  second  installment  was  due  January  i,  18 17.  Ten  dollars  per  share 
would  then  become  due  in  specie.  Specie,  however,  was  then  still  at  six 
per  cent,  premium  in  Philadelphia.  At  a  directors'  meeting  December 
1 8th,  it  was  voted  to  make  loans  on  stock  in  order  to  facilitate  the  payment 
of  the  specie  portion  of  this  second  installment.  December  27th,  other  votes 
were  passed,  in  form  restricting  these  loans  somewhat,  but  really  only  limit- 
ing the  advantage  to  a  few.  Measures  were  taken  to  buy  and  import  specie 
for  the  account  of  the  Bank.  During  the  two  years,  18 17  and  18 18,  the  Bank 
imported  $7,31 1,750  in  specie,  at  an  expense  of  $525,297.  Upon  the  inquiry 
which  was  subsequently  made,  the  bank  officers  declared  that  they  could  not 
distinguish  in  their  accounts  so  as  to  tell  how  much  specie  had  been  paid  in  at 
the  second  installment.  The  amount  of  specie  in  the  Bank,  in  January,  181 7, 
was  $1,724,109,  which  was  only  $324,109  more  than  the  specie  part  of  the 
first  installment,  and  the  latter  sum  is  therefore  the  utmost  which  could  have 
been  paid  in  on  the  second  installment,  when  it  was  intended  and  expected 
that  %2.'i  millions  would  be  paid  in  specie.  Checks  on  the  Bank  and  on  other 
banks  which  claimed  to  pay  specie,  as  well  as  notes  of  the  latter,  were  taken 
as  equivalent  to  specie.  Everyone  who  was  acquainted  with  the  methods 
of  banking  of  the  time  detiared  that  no  specie  would  be  added  to  the  stock 
of  the  Bank  by  the  second  or  third  installment*  Crawford,  in  1820,  showed 
that  such  was  the  usual  practice  in  organizing  banks.  "  The  reason  why  a 
bank  of  $35  millions  could  be  created  in  1816,  was  simply  that  there  was 
then  a  large  amount  of  funded  debt  of  the  United  States  incorporated  in  the 
capital,  rendering  it  necessary  for  the  subscribers  to  raise  less  than  $5,000,- 
000  in  specie  before  the  Bank  went  into  operation."! 

The  measures  which  had  been  adopted  in  the  Bank  encouraged  the  stock 
jobbing.  The  discounts  were  not  even  restrained  to  the  coin  part  of  the 
second  installment,  but,  in  some  favored  cases,  reached  the  total  amount  of 
the  first  two  installments.  After  February  20th,  this  became  the  general 
rule,  although  the  second  installment,  in  many  cases,  had  not  yet  been  paid. 
"The  discounts,  the  payment  of  the  second  installment,  the  payment  of  the 
price  to  the  owner,  the  transfer,  and  the  pledge  of  the  stock  were,  as  it  is 
termed,  simultaneous  acts.  "J  At  the  end  of  December,  1816,  the  stock  was 
at  41  7-8  for  30  paid;  in  April  at  81,  and  in  May  at  98  for  65  paid;  August 
20th,  at  144  for  100  paid;  and  August  30th,  at  156  1-2,  where  it  stood  for  a 
few  days. 

Some  suspicion  of  the  proceedings  in  the  Bank  was  aroused  in  the  public 
mind,  and  strong  criticism  was  provoked.    January  6,  1817,  Forsyth  intro- 


*  Gouge,  Journal  of  Banking,  284. 


t  I  Raguet's  Register,  16). 


I  Cammittee  of  1819. 


INFLATION  ON  THE  ATLANTIC  COAST. 


79 


duced  in  the  House  of  Representatives,  a  resolution  of  inquiry  whether  the 
payment  of  the  specie  part  of  the  second  installment  had  been  avoided. 
The  Committee  on  Currency  addressed  an  inquiry  to  Mr.  Lloyd,  a  director 
of  the  Ba  ik,  who  chanced  to  be  in  Washington.  He  replied,  on  the  9th, 
admitting  that  discounts  had  been  made  to  facilitate  the  second  payment, 
but  excusing  it  on  the  ground  that  the  payments  would  not  otherwise  have 
been  made.  The  only  penalty  for  non-payment  was  to  lose  any  dividend 
which  might  be  declared,  and  this,  he  said,  was  not  sufficient.  In  fact,  the 
discounts  did  not  cause  the  installments  to  be  paid,  but  enabled  the  stock  to 
be  carried  until  it  could  be  sold  at  an  advance.  The  Committee  transmitted 
Lloyd's  letter  in  answer  to  Forsyth's  resolution,  whereupon  Forsyth  intro- 
duced another  resolution,  January  13th,  that  the  bank  should  not  be  allowed 
to  go  into  operation,  or  to  receive  public  deposits,  until  the  second  install- 
ment was  paid,  according  to  the  charter.  This  resolution  was  not  acted  on 
until  the  end  of  the  session,  when  it  was  indefinitely  postponed  for  want  of 
time,  on  Forsyth's  own  motion. 

January  30,  18 17,  the  directors  of  the  Bank  voted  to  issue  post  notes  at 
sixty  days  for  loans  granted. 

"Thus  it  was  that  the  great  Bank,  instead  of  acting  as  a  check  to  inflation, 
adopted  all  the  worst  methods  of  bank  organization  of  the  time,  and  joined 
in  the  career  of  inflation.  "The  Bank  did  not  exercise  with  sufficient 
energy  the  power  which  it  possessed  and  might  have  retained,  but  rather 
afforded  inducements  to  the  State  Banks  to  extend  the  amount  of  their  circu- 
lating notes,  and  thus  increased  one  of  the  evils  it  was  intended  to  correct."* 
From  the  very  brink  of  resumption  the  great  Bank  carried  the  whole  country 
back  into  the  slough  of  inflation  and  depreciation. 

Its  notes,  being  redeemable  at  any  branch,  became  at  once  a  good  and 
cheap  remittance.  Boston  was  then  the  money  market  of  the  country,  and 
the  Middle  States  were  in  the  debtor  relation  to  the  East.  Notes  of  the  Bal- 
timore branch  were  advertised  for  sale  at  Boston  a  few  days  after  the  branch 
at  the  latter  place  went  into  operation.  The  Boston  and  New  York  branches 
were  busy  redeeming  the  notes  issued  by  the  Baltimore  branch,  and  the 
parent  Bank  had  to  send  them  continually  new  supplies  of  silver.  From 
March,  1817,  to  December,  1818,  $1,622,800  in  specie  were  sent  to  Boston 
and  $6,293,192  to  New  York.  During  the  latter  half  of  the  year  18 18,  the 
sum  sent  to  Boston  was  small,  because  treasury  drafts  were  issued  to  the 
Baltimore  branch  on  the  northern  branches,  drawing  to  it  the  public  depos- 
its. First,  therefore,  the  Baltimore  branch  drew  to  itself  the  capital  of  the 
Boston  branch,  and  then  it  drew  to  itself  the  public  deposits.  January  31, 
1818,  the  Baltimore  branch  owed  the  other  branches $9. 5  millions.  The  sil- 
ver paid  out  by  the  northern  branches  was  shipped  to  India  and  China,  for 
which  fact  the  merchants  in  that  trade  were  denounced  as  enemies  of  their 
country.    The  banks  of  Massachusetts  resisted  the  payment  of  deposits  to 

♦  Committee  of  1819. 


So 


A  HISTORY  OF  BANKING. 


the  Bank  of  the  United  States,  because  they  held  specie  paid  in  by  the  people 
of  Massachusetts,  and  wanted  the  same  or  their  own  notes  paid  out  to  them. 
It  seemed  that  the  Middle  States,  which  had  gone  so  deeply  into  the  paper 
system,  had  now  organized  a  big  bank  to  draw  the  specie  which  the  East- 
ern States  had  kept  during  the  war,  giving  United  States  bank  notes  for  it. 
Here,  then,  we  find  that  in  the  East  the  operation  of  the  Bank  was  to  draw 
into  the  paper  system  this  section  which  had  thus  far  kept  out  of  it.  In 
1814,  the  Boston  banks  had  circulation  and  deposits  to  the  amount  of  $1.66 
for  every  $1  in  specie  they  possessed  ;  in  1815,  $2,07  ;  in  1816,  $3.45  ;  in 
1817,  $4.08 ;  in  1818,  $5.78.  The  ratio  then  improved  until  1821,  when  it 
was  $2.58.*  Silver  was  at  seven  per  cent,  premium  in  Boston,  October  17, 
1818. 

If  we  now  turn  our  attention  to  the  Western  States,  we  find  that  the 
notes  issued  by  the  branches  there  were  obtained  on  easy  credit  and  remit- 
ted East  in  purchase  of  commodities.  The  cashier  of  the  branch  at  Lexing- 
ton, Kentucky,  being  alarmed  at  this  remittance  of  his  notes  to  be 
redeemed  at  Philadelphia,  thought  best  to  use  the  notes  of  the  State  banks, 
and  to  restrict  his  own  circulation.  For  this  he  received  a  rebuke  of  extra- 
ordinary severity  from  the  president  of  the  parent  Bank,  who  instructed  him 
that  his  business  was  to  issue  and  circulate  his  own  notes,  and  directed  him 
to  sell  drafts  at  a  low  enough  rate  to  hinder  the  shipment  of  his  notes,  and 
to  buy  drafts  when  he  could  get  them.  This  drew  out  a  remonstrance 
from  Crawford,  who  warned  the  Bank  that  the  public,  who  had  been 
pleased  at  the  apparent  success  of  the  Bank  in  equalizing  the  exchanges 
[that  is,  the  improvement  of  the  exchanges  up  to  February  20,  1817],  would 
be  very  much  dissatisfied  if  it  should  now  appear  that  the  Bank  and  its 
branchjes  were  about  to  establish  a  system  of  internal  exchanges,  "without 
reference  to  the  commercial  relation  which  exists  between  the  two  places,  "f 
In  fact  this  arrangement  made  little  difference  in  respect  to  the  operation  of 
the  Bank  on  the  western  country.  The  loans  were  repaid  in  local  notes, 
which  accumulated  in  the  branch  until  they  were  presented  for  redemption ; 
then  the  silver  obtained  for  them  was  shipped  eastward.  At  the  same  time 
the  notes  of  the  United  States  Bank  and  the  local  banks  together  increased 
to  occupy  the  space  left,  and  then  to  become  redundant  and  depreciate.  J 
Therefore  in  this  section  also  the  operation  of  the  Bank  was  mischievous, 
and  we  find  it  drawing  into  the  inflation  another  section  which  had  not  yet 
taken  part  in  it.  In  the  South  it  had  very  much  the  same  effect,  although 
that  effect  was  not  developed  until  somewhat  later.§ 

The  Bank  had  scarcely  gone  into  operation  before  it  began  to  make 
difficulties  about  paying  specie  for  its  notes  without  reference  to  the  place  of 
issue.  Jones  wrote  that  it  would  furnish  weapons  for  its  own  destruction 
by  so  doing.  He  illustrates  this  as  follows:  "During  the  existence  of  the 
late  compact  between  the  Bank  of  the  United  States  and  the  State  banks 


•  Man.  Senate  Doc.  Mo.  38,  Feb.  1838. 


1 4  Folio  Finance,  539. 
)  Sec  page  113. 


X  See  page  109  and  tlie  table,  page  140. 


INFLATION  ON  THE  ATLANTIC  COAST. 


8i 


[that  the  former  would  not  demand  balances  of  the  latter  until  it  had  dis- 
counted to  a  certain  amount  in  the  large  cities],  it  became  necessary  to  level 
the  exchange  from  Washington  to  Boston,  whatever  might  be  the  cost  or 
hazard  of  the  undertaking,  inasmuch  as  the  Bank  of  the  United  States  had 
engaged  to  receive  on  deposit,  and  of  course  to  pay  in  specie,  the  paper  of 
all  the  contracting  banks,  and  to  permit  them  to  check  on  each  other  for  the 
liquidation  of  the  public  balances,  the  payment  of  which  was  suspended. 
The  consequence  was  that  each  check  impaired  the  value  of  the  debt  due 
to  the  Bank  of  the  United  States  by  substituting  paper  less  valuable  than 
that  of  the  original  debtor.  It  was  soon  discovered  that  this  practice  was 
not  confined  to  the  liquidation  of  the  public  balances,  but  was  made  to 
embrace  the  current  business  between  the  banks  of  the  respective  cities. 
The  banks  in  New  York  discounted  paper  payable  in  Philadelphia,  and  those 
in  Philadelphia  discounted  paper  payable  in  New  York.  The  Bank  of  the 
United  States  and  its  offices  were  made  the  instruments  to  place  the  amount 
of  these  transactions  in  specie  wherever  money  was  most  in  demand."* 

The  pretended  resumption  of  1817  was  unreal.  It  never  was  accom- 
plished. In  1820,  Secretary  Crawford  said  that,  for  most  of  the  time  since 
resumption,  the  convertibility  of  bank  notes  into  specie  had  been  rather 
nominal  than  real  in  the  great  portion  of  the  Union. 

By  May,  1817,  complaints  began  to  be  heard  that  the  resumption  was 
only  nominal.  May  17th,  Niles  said:  "Though  our  banks  ostensibly  pay 
specie,  it  is  almost  as  rare  as  it  was  some  months  ago  to  see  a  dollar." 

The  third  installment  of  the  capital  of  the  Bank  became  due  July  ist. 
Little  notice  was  taken  of  it,  and  it  seems  to  have  been  paid  much  as  the 
subscribers  chose.  No  specie  was  paid  in,  although  $2.8  millions  should  now 
have  been  paid,  according  to  the  charter,  and  as  public  stocks  had  risen 
above  the  rates  at  which  they  were  receivable  in  the  capital,  and  as  the 
amount  of  public  stocks  held  by  the  Bank  was  subsequently  found  to  be 
deficient,  it  appears  that  a  large  part  of  this  installment  was  paid  in  bank 
notes  or  by  stock  notes.  July  25th,  the  directors  voted  that  the  branches 
might  make  loans  on  pledge  of  Bank  stock.  August  26th,  they  voted  to 
make  loans  on  the  stock  of  the  Bank  at  125,  giving  as  a  reason  that  it  had 
been  taken  as  collateral  for  loans  at  that  rate  in  New  York.  The  Committee 
of  1 8 19  could  not  find  that  this  was  true.  An  endorser  was  at  first  required 
*  for  the  amount  above  par,  but  later  this  was  not  insisted  on.  September 
30th,  the  president  and  cashier  were  authorized  to  renew  notes  discounted 
on  pledges  of  stock.  The  president  and  some  of  the  directors  were  deeply 
engaged  in  the  stock  jobbing.  The  former  had  a  very  large  interest,  on 
which  he  suffered  a  loss.  The  stock  began  to  decline  at  the  end  of  September, 
and  in  December,  18 18,  was  at  no. 

October  11,  18 17,  Niles  said:  "Though  the  Bank  of  the  United  States 
and  its  branches  has  had  a  considerable  effect  to  equalize  the  exchange  of 

*  4  Folio  Finance,  808. 


^i^mm 


82 


/I  HISTORY  OF  BANKING. 


moneys  between  different  places,  being  assisted  in  its  operation  by  the 
natural  courses  of  trade,  still  the  people  are  inundated  with  paper  called  bank 
notes  at  almost  every  depreciated  rate,  one-half  to  seventy-five  per  cent." 

The  important  incidents  of  the  period  of  inflation,  in  the  banking  history 
of  the  several  States,  were  as  follows: 

The  Legislature  of  Massachusetts,  in  18 12,  tried  to  reduce  the  number  of 
banks  by  refusing  to  renew  the  charters  which  expired  in  that  year.  The 
New  England  Bank  was  chartered  June  6,  1813.  It  constituted  another 
attempt  to  deal  with  the  circulation  of  the  country  notes  in  Boston,  on  which 
the  discount  was  then  from  three  per  cent,  to  five  per  cent.  It  undertook  to 
send  home  these  foreign  bills,  as  they  were  called,  to  the  banks  which 
issued  them,  at  the  cost  of  the  operation.  This  rapidly  reduced  the  dis- 
count on  the  country  notes.  In  January,  18 14,  it  sent  certain  New  York 
bank  notes  home  for  redemption  to  the  amount  of  $138,874.  "This  silver 
was  put  into  three  wagons,  which  proceeded  on  their  way  hither  as  far  as 
Chester,  14  miles.  There  they  were  seized  by  order  of  the  Collector  of  New 
York,  commanded  back,  and  the  money  deposited  in  the  vaults  of  the  Man- 
hattan Bi'nk,  of  which  he  was  a  director.  Though  a  protest  was  handed  to 
him  against  such  a  course  as  illegal,  by  the  agent,  yet  he  declined  to  alter 
his  purpose.  He  assigned  as  a  reason  for  this  procedure  that  he  suspected 
such  cash  was  going  to  Canada.  Many  this  way  supposed  that  he  was 
chiefly  actuated  by  dislike  to  the  frequency  with  which  the  New  England 
Bank  dispatched  large  sums  of  the  New  York  bills,  which  flooded  Massa- 
chusetts, to  be  redeemed  with  dollars.  On  being  made  acquainted  with 
these  facts,  the  General  Court  resolved  that  the  conduct  of  the  collector  in 
this  respect  is  a  violation  of  his  duty  and  an  infringement  on  the  rights  of 
the  New  England  Bank.  They  also  decided  to  have  the  matter  laid  before 
the  President  of  the  United  States,  with  the  expression  of  their  judgment, 
that  the  collector  had  committed  an  outrage  on  one  of  their  corporations, 
ought  to  relinquish  the  deposit,  and  be  dismissed  from  his  office.  Such 
application  so  far  succeeded  as  to  have  the  money  restored."* 

During  the  war,  the  banks  would  not  lend  to  the  State,  at  the  risk  of 
increasing  their  issues.  February  6,  1816,  an  act  was  passed  to  compel 
them  to  do  so  when  necessity  might  arise.  In  the  summer  of  that  year,  the 
Dedham  Bank  issued  a  quantity  of  paper  in  the  form  of  drafts  on  a  bank  at 
Middletown,  Connecticut,  payable  to  bearer,  which  led  to  an  act  of  Decem- 
ber 13,  1816,  which  enacted  that  all  the  notes  and  obligations  of  banking 
institutions  should  be  payable  in  specie  at  their  own  counters.  The  Court 
in  King  vs.  the  Dedham  Bank,f  held  that  this  law  was  void  as  to  issues 
mad.  before  its  passage.  Before  that,  therefore,  these  Massachusetts  banks 
had  been  able  to  issue  drafts  which  were  used  as  currency.  In  1817,  notes 
for  less  than  $1  became  very  abundant.  They  were  forbidden  February  3, 
1818. 


*  Felt,  118. 


t  15  Musachusetts,  447. 


INFLATION  ON  THE  ATLANTIC  COAST. 


83 


New  York. — Credit  notes,  by  their  tenor  only  receivable  by  a  bank  for 
dues  to  itself,  were,  by  a  law  of  1816,  made  recoverable  in  money,  and  banks 
were  forbidden  to  issue  any  notes  payable  otherwise  than  in  money. 

The  law  of  this  State  forbade  any  unauthorized  association  to  issue  notes. 
In  1818,  this  prohibition  was  extended  to  persons,  and  both  persons  and 
associations  were  forbidden  to  do  any  kind  of  banking  unless  chartered  so  to 
do.  J  icob  Barker's  Exchange  Bank  was  excepted  for  three  years.  The  act 
was  called  for  on  account  of  the  mass  of  fractional  notes  which  had  been 
issued  by  all  kinds  of  persons  and  corporations. 

Pennsylvania.— At  the  session  of  i8ia  and  1813,  twenty-five  banks 
were  chartered  by  the  Legislature  in  one  bill.  The  total  capital  was 
$9,525,000.  The  bill  passed  both  Houses  by  a  majority  of  only  one  vote  in 
each  and  was  vetoed  by  the  Governor.  "At  the  following  session  the  sub- 
ject was  renewed  with  increased  ardor  and  a  bill  authorizing  the  incorpora- 
tion of  forty-one  banking  institutions,  with  capitals  amounting  to  upwards 
ol  >i7  millions  was  passed  by  a  large  majority."  It  was  vetoed  by  the  Gov- 
ernor, but  passed  by  the  constitutional  majority  and  became  a  law  March 
21,  1814.  Under  it  thirty-seven  banks  were  organized;  four  of  them  in 
Philadelphia.* 

Virginia. — The  Bank  of  Virginia  and  the  Farmers'  Bank  were  authorized 
October  19,  18 14,  to  issue  one's,  two's  and  three's,  but  not  to  increase  their 
total  circulation,  until  six  months  after  the  peace. 

February  19,  1816,  perhaps  with  some  reference  to  the  incident  narrated 
on  page  70,  provision  was  ma Je  by  law  for  suits  against  corporations  includ- 
ing banks,  and  for  writs  of  execution  against  them;  service  to  be  on  the 
chief  officers ;  levy  might  be  made  on  the  current  money  as  well  as  on  the 
goods  and  chattels.  February  23d,  a  summary  proceeding  was  provided 
against  any  bank  which  did  not  pay  specie  after  the  15th  of  tne  following 
November,  six  per  cent,  interest  being  imposed  and  a  levy  on  property  of 
the  bank  anywhere  in  the  State  being  authorized.  This  remedy  was  not 
given  to  any  bank  or  its  agent.  This  appeared  to  commit  Virginia  to  a  reso- 
lute policy  of  resumption;  but  on  November  14th  following,  this  act  was 
suspended  for  a  month,  and  then  for  six  months,  although  banks  which  did 
not  pay  specie  for  their  notes  under  $1  after  January  10,  1817,  were  excepted 
from  the  indulgence. 

All  unchartered  banks  were  made  illegal,  February  24,  18 16.  If  any  such 
issued  notes,  the  officers  and  partners  were  liable  to  fine.  Such  notes  were 
null  and  void.  The  fine  for  signing  was  threefold  the  amount  of  notes 
signed.  Such  a  company  could  not  recover  in  any  court  in  the  State.  Such 
illegal  notes  under  $1  being  in  circulation,  the  holder  of  one  of  them  may 
recover  $5  from  the  issuer  or  signer.  November  1 5th,  this  act  was  suspended 
as  to  ten  enumerated  companies  and  banks  until  August  31,  1817,  in  order 
to  give  them  more  time  to  wind  up.  On  the  following  day  this  extension 
was  granted  for  four  more. 

*  lUguet's  Report  on  the  Diatress.    Senate  of  Pennsylvania,  1820. 


84 


A  HISTORY  OF  BANKING. 


\  'I 


January  5,  1816  a  long  report  on  banks,  resumption,  etc.,  was  presented 
to  the  House  of  Delegates.  It  ended  with  a  proposition  to  establish  fourteen 
banks  in  various  counties  up  and  down  the  State.*  This  committee  stated 
that,  before  the  war,  the  notes  of  eastern  banks  were  at  a  premium  of  two 
or  three  per  cent,  in  the  West.  During  the  war  those  of  the  western  banks 
came  to  bear  about  the  same  premium  in  the  East.  Since  the  war  the  former 
state  of  things  had  returned.  This  no  doubt  refers  especially  to  Virginia  and 
Kentucky,  and  it  may  be  only  a  reminiscence  of  the  effects  of  the  rising  tide 
of  inflation  in  the  two  sections  at  different  times. 

The  Northwestern  Bank  of  Virginia  was  chartered  February  5,  1817,  at 
Wheeling;  capital  not  less  than  $400,000  nor  more  than  $600,000;  to  be  paid 
in  in  coin.  A  peculiar  provision  was  here  introduced  that  15  percent,  of  the 
capital  should  be  created  in  additional  stock  to  be  given  to  the  State  as  a  fund 
for  internal  improvements.  It  was  to  be  paid  for  "by  charging  an  equal 
proportion  of  the  amount  thereof  on  each  share  disposed  of  to  subscribers." 
This  amount  was  to  be  paid  in  in  thirty  semi-annual  installments,  the 
first  one  on  the  day  of  the  first  dividend,  out  of  which  such  installment  was 
to  be  retained,  if  the  dividend  sufficed  for  it;  if  not,  the  shares  were  to  be 
assessed  and  any  stockholder  who  did  not  pay  the  assessment  was  to  forfeit 
his  stock.  Three  branches  were  provided  for.  It  was  to  last  until  18^4. 
Evidently  the  payment  to  be  made  by  each  stockholder  on  his  stock,  in  order 
to  pay  for  that  given  to  the  State,  was  one-half  of  one  per  cent,  each  six 
months,  which  was  to  come  out  of  his  dividend  if  it  exceeded  that  amount. 
This  bank  was  to  make  no  loan  for  longer  than  120  days;  to  issue  no  notes 
under  $5 ;  and  to  have  three  State  directors.  In  the  same  act  the  Bank  of  the 
Valley  in  Virginia  was  chartered  with  similar  details  throughout.  The  State 
might  sell  its  stock  in  each  at  will,  and  15  per  cent,  penalty  was  imposed, 
with  forfeiture  of  the  charter,  for  failure  to  redeem. 

The  complaints  about  the  unauthorized  note  issuers  came  up  again  in 
1820,  for  they  continued  their  operations.  New  penalties  were  imposed, 
including  imprisonment  from  one  to  twelve  months  for  individuals,  and  a 
fine  of  $50  on  corporations.  A  fine  between  $10  and  $100  was  imposed  on 
bringing  such  notes  into  the  State  with  intent  to  circulate  them,  and  a  fine 
of  $10  for  offering  to  pay  or  pass  them. 

The  Northwestern  Bank  did  not  pay  the  contributions  to  the  State  stock 
promptly.  Therefore  an  act  of  January  7,  1822,  provided  that  the  notes  of 
the  Northwestern  Bank  and  the  Valley  Bank  should  be  receivable  for  taxes 
as  long  as  they  pay  specie,  and  if  the  former  pays  up  its  arrears  on  the  State 
stcck.  The  charter  of  the  Farmers'  Bank  was  extended  March  6,  1824,  for 
fifteen  years,  and  it  was  brought  under  the  same  law  of  penalty  for  suspension, 
etc.,  as  the  Northwestern  Bank.  A  bonus  of  $50,000  was  exacted  for  internal 
improvements,  which  sum  must  be  paid  out  of  dividends  on  the  stock  not 
owned  by  the  State. 


*  9  Niles,  Supp.  155. 


INFLATION  ON  THE  ATLANTIC  COAST. 


8s 


North  Carolina. — The  charter  of  the  Banks  of  Cape  Fear  and  Newbern 
were  extended,  in  1814,  until  183s;  the  capital  of  the  former  might  be 
increased  $52^,000;  that  of  the  latter,  $575,000.  Each  bank  was  bound  to 
lend  to  the  State  not  more  than  one-tenth  of  its  capital  at  not  more  than  six 
per  cent.  An  option  was  reserved  for  the  State  on  1,000  shares  in  each,  of 
which  180  shares  were  to  be  given  to  the  State  as  a  bonus,  and  the  State 
might  pay  for  the  410  shares  with  its  own  treasury  notes.  The  remainin,'.' 
410  shares  were  to  be  paid  for  at  the  convenience  of  the  State.  The  debts 
of  either  bank  might  not  exceed  all  cash  deposits  by  more  than  $2,400,000. 
The  State  paper  was  not  to  be  a  legal  tender  to  either  of  these  banks,  but 
only  to  the  Bank  of  the  State  after  January  1,  1816.  No  notes  were  to  be 
issued  under  $1.  Treasury  notes  were  to  be  issued  for  the  sum  of  $82,000 
in  denominations  of  five  cents,  ten  cents,  twenty  cents,  etc.,  all  of  which  were 
to  be  paid  over  to  the  two  banks  in  payment  of  the  first  installment  ($10  per 
share)  on  410  shares  in  each.  They  were  to  bear  no  interest;  were  to  be 
issued  by  the  banks  and  redeemed  by  the  Treasurer;  to  be  re-issued  by  him. 
If  the  Bank  of  the  State  should  be  voluntarily  dissolved  before  December  18, 
1816,  these  banks  were  to  take  up  the  State  paper  with  their  own  paper, 
at  the  rate  of  $1  for  10  shillings.  If  this  was  done,  the  Governor  was  to 
proclaim  that  the  State  notes  were  not  a  legal  tender,  except  to  these  banks 
until  their  charters  expire,  after  which,  if  State  notes  are  still  out,  they  were 
to  be  legal  tender  again ;  but  the  dividends  on  the  stock  owned  by  the  State 
were  to  be  employed  in  redeeming  them. 

A  Committee  of  the  Legislature  in  1828-9  reported,  in  regard  to  the  banks 
of  Cape  Fear  and  Newbern,  that  the  increase  of  their  capital  in  18 14  was 
paid  for  by  stock  notes  of  favored  individuals.  "\i  follows  that  the  whole 
amount  of  the  interest  drawn  from  the  people  on  the  loans  made  on  this 
fictitious  capital  was  a  foul  and  illegal  extortion.  *  *  *  Taking  the  issues 
made  on  this  fabricated  capital,  to  be  in  proportion  with  those  made  on  the 
former  capital,  they  must  have  put  into  circulation  on  the  faith  of  the  assumed 
stock,  between  $3  millions  and  $4  millions  of  notes,  and  thus  a  parcel  of 
individuals  under  the  name  of  stockholders,  but  who  in  fact  held  no  stock, 
contrived  to  exchange  their  notes  without  interest  to  the  amount  of  $3  millions 
or  $4  millions  for  the  notes  of  the  people  bearing  an  interest  of  more  than  six  ' 
per  cent.,  and  while  the  property  of  the  people  was  pledged  for  the  payment 
of  the  notes  they  had  given  to  the  stockholders,  there  was  not  a  dollar  or  an 
atom  of  property  pledged  to  them  for  the  payment  of  the  notes  they  had 
received /row  the  stockholders."  * 

This  State  pas«!ed  a  law  against  due  bills  and  small  promissory  notes  in 
1816,  declaring  that  the  abuse  was  increasing  and  was  very  detrimental  to 
the  true  interests  of  the  State.  It  appears  that  schools  and  academies  were 
making  such  issues.  "It  shall  not  be  lawful  for  any  person  or  persons  to 
pass  or  receive  any  check  or  checks  drawn  for  less  than  $1  on  the  State 


»  See  pigis  4S,  176. 


86 


A  HISTORY  OF  BANKING. 


E 


Bank,  the  Bunks  of  Newbern  or  Cape  Fear,  or  the  various  branches  or  agen- 
cies thereof,  for  the  benefit  of  any  academy,  school,  or  corporation,  or  com- 
pany of  private  citizens,  or  any  check  or  checks  drawn  on  any  person  or 
persons  whatever."  The  penally  was  jQ\o,  half  to  the  prosecutor.  Issuing 
notes  without  authority  was  punishable  with  a  fine  of  ;^ too  and  imprison- 
ment for  six  months.  At  the  same  session  so  much  of  an  act  to  incorporate 
a  school,  and  of  another  act  to  incorporate  a  manufacturing  company,  as 
might  by  construction  authorize  either  of  them  to  issue  notes  was  repealed. 
If  they  did  not  pay  on  demand,  the  holder  might  recover,  as  the  law 
expresses  it,  loo  per  cent,  on  the  principal  sum.  An  alteration  was  also 
made  in  the  charter  of  the  Bank  of  the  State,  providing  that  the  Treasurer 
should  cause  $80,000  to  be  printed  in  treasury  notes,  in  denominations  from 
five  cents  to  seventy-five  cents,  redeemable  and  re-issuable  by  the  Treasurer, 
to  be  in  part  payment  of  the  debt  of  the  State  to  the  bank. 

In  regard  to  the  Bank  of  the  State,  the  committee  of  1828-9  said  that:  In 
1818,  the  proportion  between  its  notes  and  circulation,  was  one  to  twelve;  in 
that  year  $424,000  of  stock  unsold  was  sold  for  their  own  notes,  in  order  to 
reduce  the  amount  of  them.  This  the  committee  calls  a  "scribbling  pro- 
cess." While  this  operation  was  pending,  the  three  banks  entered  into  a 
formal  agreement,  July,  1819,  not  to  pay  specie,  and  their  notes  fell  at  once  to 
85.  Up  to  this  time  there  had  been  inflation  and  piosperity.  "A  scene  of 
extortion  and  usury  ensued  which  has  no  parallel  in  the  annals  ofavarice;  the 
strange  spectacle  of  moneyed  institutions  exacting  specie  in  exchange  for 
their  notes,  which  they  themselves  refused  to  redeem  with  specie." 

South  Carolina. — The  Bank  of  the  State  of  South  Carolina  was  chartered, 
December  19,  18 12,  as  a  measure  of  relief  after  the  sufferings  from  the 
embargo,*  and  the  preamble  of  the  charter  stated  that  it  was  "deemed 
expedient  and  beneficial,  both  to  the  State  and  the  citizens  thereof,  to  estab- 
lish a  bank  on  the  funds  of  the  State,  for  the  purpose  of  discounting  paper 
and  making  loans  for  longer  periods  than  have  heretofore  been  customary, 
and  on  security  different  from  what  has  hitherto  been  required."  All  stock 
of  the  United  States,  loan  office  bonds,  bank  shares,  and  credits  belonging 
to  the  State  are  to  be  put  in  this  bank,  and  the  faith  of  the  State  is  pledged 
to  make  good  any  deficiencies;  public  deposits  to  be  placed  in  it;  to  lend  on 
two-name  paper  and  on  real  and  personal  property,  the  borrower  giving 
power  of  attorney  to  confess  judgment;  no  loan  to  run  more  than  a  year; 
no  renewal  to  be  granted  unless  the  next  year's  interest  is  paid  in  advance ; 
no  loan  to  one  person  to  exceed  $2,000;  one-tenth  of  each  loan  to  be  called 
in  in  each  year;  prompt  execution  to  be  enforced  against  defaulters;  the 
Legislature  to  elect  a  president  and  twelve  directors;  to  issue  no  note  under 
$1 ;  to  be  called  the  Bank  of  the  State  of  South  Carolina;  to  be  situated  at 
Charleston,  with  a  branch  at  Columbia.  The  loans  on  mortgage  were  to  be 
apportioned  between  the  election  districts;  all  stock  owned  by  the  State  in 

•  Report  of  the  Bank,  1841. 


INFLATION  ON  THE  ATLANTIC  COAST. 


87 


other  banks  might  be  sold  and  the  proceeds  turned  into  this  one.  The 
State  might  issue  $300,000  of  six  per  cent,  stock,  the  proceeds  to  go  into 
the  funds  of  this  bank.  The  notes  were  to  be  receivable  by  the  State.  Five 
commissioners  were  to  be  appointed  in  each  district  to  appraise  the  lands 
on  which  loans  were  wanted.  In  an  explanatory  act,  a  year  later,  it  was 
enacted  that  no  other  bank  should  issue  notes  under  $^,  which  gave  this 
bank  a  monopoly  of  small  notes.  December  21,  1814,  the  Bank  of  the  State 
was  required  to  issue  notes  under  $1,  and  no  one  but  the  chartered  banks 
was  to  be  allowed  to  issue  circulating  paper.  The  city  of  Charleston  was 
given  until  January  i,  1816,  to  call  in  its  bills  of  credit.  The  Bank  of  the  State 
was  authorized  to  deal  in  inland  exchange,  December  is,  181  s.  At  this 
time,  also,  the  connection  of  the  State  with  the  old  "State  Bank"  was  dis- 
solved, except  by  virtue  of  the  stock  which  it  still  held.  The  Bank  of  the 
State  was  charged,  December  17,  18 16,  with  the  liquidation  of  the  old  loan 
office  of  the  State,  which  was  still  dragging  along  a  load  cf  bad  debts.  It 
was  to  sell  the  land  which  had  been  mortgaged  to  that  oflfice,  but  was  not 
to  call  up  in  any  one  year  more  than  one-third  of  the  debt.  The  effect  of  the 
war  finance  is  seen  in  an  act  of  December  17,  1817,  that  all  the  banks  in  the 
State  may  Invest  not  over  half  their  capital  in  stocks  of  the  State  or  the 
United  States. 

In  1819,  October  ist,  the  directors  of  the  Bank  of  the  State  of  South  Car- 
olina published  an  anti-bullionist  argument  against  resumption.  It  did  not 
resume  until  1823.     The  United  States  Bank  at  Charleston  used  its  paper.* 

Georgia. — The  Bank  of  the  State  of  Georgia  was  chartered  December  16, 
181 5,  with  a  capital  of  $1,500,000,  $600,000  of  which  was  to  be  reserved  for 
the  State  untiljanuary  i,  1817;  the  State  to  appoint  six  out  offifteen  directors; 
to  organize  when  $250,000  in  specie  paid  in;  the  circulation  never  to  exceed 
three  times  the  capital;  to  last  until  1835.  The  Governor  was  at  once  autho- 
rized to  act  upon  the  right  reserved  to  the  State.  He  was  to  make  the  sub- 
scription as  well  as  he  could,  so  as  to  give  the  next  Legislature  a  chance  to 
appropriate  for  it.  The  Governor  in  his  message  of  1816,  tells  how  this  bank 
was  organized.  It  was  forbidden  to  go  into  operation  until  $250,000  were 
on  hand  in  specie.  The  State  had  to  come  forward  and  subscribe  the 
requisite  amount  from  its  own  part  of  the  capital.  This  it  did  in  notes  of 
the  Augusta  and  Planters'  Banks.  Instead  of  presenting  these  for  redemption, 
the  Governor  entered  into  a  negotiation  with  those  hanks  to  "advance  "  the 
specie  on  "a  deposit  of  their  own  notes."  No  doubt  therefore  this  bank  was 
organized  after  the  fashion  of  others  at  the  time,  by  borrowing  specie  long 
enough  to  defeat  the  law.f 

December  18,  1816,  the  Governor  was  ordered  to  assign  to  the  branch 
of  the  Bank  of  the  State  at  Milledgeville  a  room  in  the  State-house,  to  be 
used  as  its  banking  oflfice.  December  19th,  it  was  enacted  that  no  unincor- 
porated association  should  thereafter  issue  a  note  for  $2  and  above.     In  case 


■  Gouge,  Journal  of  Banking,  334. 


til  NUes,  133. 


irr^ 


88 


/I  HISTORY  OF  BANKING. 


of  violation,  the  holder  might  recover  one  hundred  and  twenty-five  per  cent, 
of  the  note.  If  any  one  but  an  incorporated  bank  should  issue  notes  for  less 
than  %2,  the  noteholder  might  recover  three  times  the  value.  Twenty  per 
cent,  tax  was  laid  on  such  unauthorized  notes  already  in  circulation.  The 
banlts  of  Georgia  were  ordered  to  resume  when  the  Bank  of  the  United 
States  and  the  banks  of  the  neighboring  States  should  begin  specie  payment. 
Af^er  that  time,  any  noteholder  might  recover  twenty-five  per  cent,  until 
the  not:s  were  paid  in  specie.  Two  years  later  another  very  stringent  act 
was  passed  against  unlicensed  banking. 

The  Bank  of  Darien  began  a  very  checkered  career  December  15,  1818. 
Its  capital  was  to  be  $1,000,000,  half  of  which  was  reserved  for  the  State 
until  January  1,  1830.  It  was  to  last  until  1837,  and  its  charter  was  to  be 
forfeited  if  it  did  not  pay  specie  on  demand. 


I 


CHAPTER  VI. 

Inflation  in  the  Mississippi  Valley. 


|HE  inflation  in  the  Mississippi  Valley  began  at  the  end  of  i8i  v 
The  president  of  the  Bank  of  the  United  States  stated  to  the 
Committee  of  1819  that  when  the  Bank  stock  was  subscribed, 
specie  was  at  six  per  cent,  premium  in  the  West,  and  at  fourteen 
per  cent,  premium  at  New  York,  Philadelphia  and  Baltimore. 
The  inflation  advanced  rapidly  during  1816  in  Kentucky  and  Tennessee,  and 
spread  in  thiit  and  the  following  years  to  Indiana,  Illinois  and  Missouri. 

Kentucky. — The  popular  party  had  now  fallen  under  the  dominion  of  a 
mania  for  banks,  as  the  institutions  which  could  make  everybody  rich. 
Clamorous  demands  were  made  for  a  share  in  the  blessings  which  the  Bank 
of  the  United  States  was  expected  to  shower  upon  the  country,  and  two 
branches  were  established  as  soon  as  the  Bank  was  organized — one  at  Lex- 
ington and  one  at  Louisville.  Prices  imnediately  began  to  rise,  specie  was 
exported,  and  contracts  were  entered  inic.  in  the  expectation  of  further 
advance.  All  hastened  to  get  into  debt,  especially  for  the  purchase  of  land, 
which,  in  a  country  of  new  settlement,  always  offers  a  tempting  chance  for 
those  who  have  already  settled  to  make  profits  out  of  the  new  comers. 
"Deeds  in  old  books  of  record  show  the  to  us  astonishing  fact  that  town 
lots  on  the  back  streets  of  the  suburbs  of  Shepherdsville  brought  prices  on 
time  that  would  now  [1882]  be  esteemed  great  for  the  best  property  in 
Louisville.  •  *  •  Every  salt  lick  and  sulphur  well  was  marked  as  a 
fountain  of  prospective  wealth,  and  eagerly  bargained  for  at  astonishing 
values.  *  *  *  The  most  active  speculators  were  those  whose  means 
were  small."* 

February  4,  181 5,  the  capital  of  the  Bank  of  Kentucky  was  increased  to 
$2  millions,  half  the  increase  to  be  taken  by  the  State.  The  bank  and 
branches  might  deal  in  exchange.  United  States  treasury  notes  and  bonds, 
and  might  lend  to  non-residents  and  to  the  United  States  not  more  than 
$300,000  for  not  more  than  two  years.     There  were  two  significant  features 

*  J.  M.  Brown  in  the  report  of  the  fint  annual  meeting  of  the  Kentucky  Bar  Association. 


\m^ 

'  1 1.Tfc^ 

■m 

'1 

1 

■'I 

1 


:l 


90 


A  HISTORY  OF  BANKING. 


in  this  law.  First,  it  tried  to  construe  more  strictly  the  limit  set  by  the 
original  charter  on  the  amount  of  loans  which  a  director  might  have ;  and 
second,  it  enacted  that  the  notes  of  the  bank  and  its  branches  should  be 
current  at  all  branches  and  receivable  for  debts  to  them  all.  This  bank  sus- 
pended in  1815,  as  we  learn  from  resolutions  of  the  Legislature,  approving 
of  that  action.*  A  committee  of  the  Legislature  examined  the  bank,  and  its 
report  was  printed,  with  a  letter  of  the  president,  giving  the  reasons  for  sus- 
pension. We  have  a  statement  of  the  condition  of  this  bank  in  February, 
1817,  according  to  which  it  had  a  capital  of  $2  millions,  loans  $4  millions, 
cash  deposits  $1.3  millions,  circulation  $1.9  millions,  cash  $1.2  millions,  f 

The  circulation  of  notes  by  persons  or  associations  not  authorized  by  law 
was  forbidden  January  28,  1817,  under  a  penalty  of  ten  times  the  amount. 
Every  one  who  passed  such  a  note  was  required  to  endorse  it,  and  was  lia- 
ble to  the  same  penalty.  The  law  was  not  applicable  to  notes  over  $2,  and 
was  limited  to  February  i,  i8t8. 

The  State  was  not  able  to  take  the  shares  in  the  Bank  of  Kentucky 
which  had  been  reserved  for  it.  It  was  ordered,  February  3,  18 17,  that  the 
same  should  be  sold  for  not  less  than  102,  in  order  to  increase  the  active 
capital.  By  the  same  act,  the  limitation  on  loans  to  directors  was  relaxed  in 
respect  to  bills  of  exchange  created  by  the  exportation  of  products  of  the 
State;  but  this  was  not  to  be  construed  to  warrant  dealing  in  bills  "founded 
on  a  speculative  system  of  acceptances."  The  obligation  to  receive  all  notes  at 
all  branches  was  also  limited  to  the  payment  of  debts  to  the  bank. 

January  26,  18 18,  the  act  was  passed  which  stood  first  amongst  the  great 
and  fateful  acts  of  legislation  of  this  period  of  infatuation.  At  first  twenty- 
four  banks  were  established  at  the  more  important  points  up  and  down  the 
State,  with  an  aggregate  capital  of  $5,870,000;  then  the  act  starts  off  again 
and  provides  for  four  more  with  a  total  capital  of  $400,000;  then  twelve  more 
are  provided  for,  with  a  total  capital  of  $1,650,000,  so  that  there  were  forty  in 
all  with  $8  millions  of  capital.  The  capital  was  to  be  paid  in  in  current 
money,  notes  of  the  Bank  of  the  United  States,  or  of  the  Bank  of  Kentucky, 
in  five  installments.  The  president  and  directors  might  extend  the  time  for 
the  three  last  installments  as  they  should  see  fit.  The  banks  were  incorpo- 
rated until  1837;  were  to  begin  when  one-fifth  of  the  capital  was  paid  in; 
were  never  to  owe,  exclusive  of  deposits,  more  than  three  times  the  capital; 
to  pay  the  State  one-half  of  one  per  cent,  on  each  share  annually ;  and  any 
one  of  them  was  to  cease  to  exist  if  it  did  not  redeem  its  issues  in  specie. 
United  States  Bank  notes,  or  Bank  of  Kentucky  notes.  Any  bank  whose 
stock  was  not  sold  within  eighteen  months  was  not  to  be  organized.  Feb- 
ruary 3d,  a  supplementary  act  was  passed,  providing  for  six  more  banks 
which  seem  to  have  been  forgotten,  with  a  capital  of  $9  millions.  On  the 
same  day  with  the  last  act,  the  corporate  powers  of  the  old  Kentucky  Insur- 
ance Company  were  extended  for  two  years  in  order  to  wind  up.  It  was 
forbidden  to  issue  notes  after  January  i,  1818. 


*  Session  Laws  of  1814-15,  447. 


1 1 1  NUes,  4)a. 


INFLATION  IN  THE  MISSISSIPPI  y ALLEY. 


Tennessee. — The  neighboring  States  were  also  now  well  started  on  the 
road  of  inflation.  The  State  Bank  of  Tennessee  was  authorized  to  issue 
notes  down  to  $i,  by  an  act  of  October  3,  1815.  November  17th  three 
banks  were  incorporated,  each  with  a  capital  of  $200,000,  of  which  $15,000 
was  subscribed  by  the  State.  November  26th,  the  Bank  of  the  State  and 
Nashville  Bank  were  authorized  to  unite  and  to  absorb  either  of  the  others. 
The  Bank  of  Nashville  had  suspended  in  July  or  August,  in  connection  with 
the  suspensions  in  the  East.* 

In  181 5,  Ohio  commenced  a  war  which  she  carried  on  longer  and  more 
vigorously,  because  apparently  with  less  success,  than  any  other  State, 
against  unauthorized  bank  notes.  She  also  tried  to  impose  taxation  on  her 
banks,  and  her  first  steps  in  this  direction  are  especially  noteworthy  because 
they  show  that  her  attempt  to  tax  the  Bank  of  the  United  States,  a  few  years 
later,  was  not  an  isolated  act  against  that  Bank.  February  10,  181 5,  it  was 
enacted  that  every  banking  company  in  the  State  should  pay  annually  four 
per  cent,  on  its  dividends.  If  any  bank  failed  to  report,  the  Auditor  was  to 
levy  one  per  cent,  on  the  nominal  capital  of  the  bank.  The  Sheriff  was  to 
present  the  bill  of  the  Auditor  to  the  bank  and  if  it  was  not  paid  at  once,  with 
four  per  cent,  additional  for  the  Sheriff's  fees,  he  was  to  levy  on  the  specie 
and  notes.  If  he  could  not  obtain  enough  of  these,  he  was  to  seize  any 
other  property  of  the  bank,  advertise,  and  sell  it.  All  contracts  with  per- 
sons or  firms  issuing  notes,  without  being  authorized  by  law  so  to  do,  were 
to  be  void.  Signing  or  issuing  such  notes  was  made  punishable  by 
imprisonment  for  one  year  and  a  fine  not  exceeding  $3,000.  The  act  was 
not  to  affect  unincorporated  banks  which  began  before  January  i,  181 5, 
until  after  January  i,  1818. 

February  14th,  the  Governor  was  authorized  to  borrow  of  the  banks 
$155,000  for  one  year,  at  six  per  cent.,  in  order  to  make  up  the  State's  quota 
of  the  direct  tax. 

At  the  next  session  another  war  was  begun  against  persons  acting  as 
agents  of  any  bank  of  issue  chartered  by  the  laws  of  another  State.  A  law 
of  January  27,  1816,  imposed  a  fine  of  $1,000  for  each  offense.  The  use  of 
the  Courts  and  of  the  processes  of  justice  were  forbidden  to  all  such  agencies. 
Any  one  interested  in  such  a  bank  was  made  personally  liable  to  any  note- 
hoider.  Such  banks  or  agencies  were  allowed  until  January  i,  1817,  to 
wind  up,  and  a  half  dozen  banks  which  were  named  were  allowed  to  go  on 
one  year  longer.  February  23d,  six  banks  were  incorporated  in  one  act, 
each  to  have  a  capital  of  $100,000,  and  to  l.'.st  until  1843.  Seven  of  the 
unincorporated  companies  with  which  the  State  had  been  at  war  were  also 
incorporated  by  the  same  act.  Each  bank  was  to  "  set  off"  to  the  State  one 
share  in  twenty-five  before  beginning,  and  so  afterwards  for  any  increase. 
The  certificates  for  these  shares  were  to  go  to  the  Auditor,  and  they  were  to 
draw  dividends  like  the  others.    Each  bank  was  to  save  from  its  profits  a 


% 


■) 


*  8  Niles,  436 


'! 


i 
i 


•  ( 


4 


•  I' 


\i 


92 


y4  HISTORY  OF  BANKING. 


sum  which  at  the  expiration  of  the  charter  would  pay  to  the  State  the  capital 
value  of  shares  so  set  off  to  it.  The  State  was  to  re-invest  the  dividends 
from  each  bank  in  shares  of  that  bank,  until  it  should  own  one-sixth  of  the 
capital.  The  bank,  if  necessary,  was  to  make  new  shares  to  meet  this  pro- 
vision. All  former  charters  were  extended  to  1843.  if  the  banks  should 
respectively  accept  this  act.  When  the  State  should  own  one-sixth  of  a 
bank,  the  dividends  were  to  go  into  the  available  revenue  of  the  treasury. 
Banks  which  came  into  this  scheme  were  not  to  be  taxed.  Any  bank  which 
violated  it  was  to  forfeit  its  charter.  The  act  was  to  be  construed  "benignly 
and  favorably."  For  so;  ne  years  afterwards  this  act  was  treated  as  a  general 
banking  law. 

In  1816  and  1817  bank  charters  were  rapidly  multiplied.  In  that  of  the 
Bank  of  Hamilton  it  is  first  provided  that  the  capital  shall  be  paid  up  in 
"money  of  the  United  States ;"  in  that  of  Galipolis  it  is  first  provided  that 
the  Governor  shall  send  a  commissioner  to  see  that  $20,000  is  actually  in  hand, 
half  in  r-pecie  and  half  in  United  States  Bank  notes,  before  it  may  begin. 

The  Farmers'  and  Mechanics'  Bank  of  Indiana  was  incorporated  September 
6,  1814,  and  the  Bank  of  Vincennes,  September  loth.  The  following 
mysterious  paragraph  from  a  law  of  December  26,  181 5,  seems  to  show  that 
the  Territory  was  infested  by  persons  who  were  issuing  notes  without 
authority.  "If  any  person  or  persons  in  this  Territory  shall  sign,  issue,  pass, 
exchange,  or  circulate  any  due  bill,  promissory  note,  banknote,  or  instrument 
of  writing  for  the  payment  of  any  money  or  property,  or  performance  of  any 
covenant  or  contract,  purporting  to  be  the  act  of  any  bank,  company, 
secret  society,  or  set  of  men  in  this  Territory  other  than  is  or  are 
expressed  by  name,  upon  the  face  of  such  due  bill,  promissory  note,  bank 
note,  or  instrument  of  writing,  so  as  to  gain  a  credit  and  trust  in  some 
unknown  person,  company,  or  set  of  men,  to  the  holder  of  such  note,  due 
bill,  or  instrument  of  writing,  besides  the  signer  or  signers  thereof,"  he  shall 
be  fined  three  times  the  sum  in  the  note  and  be  liable  to  the  noteholder  for 
the  amount.  This  is  not  to  affect  any  bank  chartered  by  this  Territory,  and 
any  one  may  recover  what  he  can  in  payment  of  "bank  notes  of  any  secret 
company  or  set  of  men"  or  of  any  other  paper;  but  it  applies  to  the  bank 
notes  of  the  Indiana  Manufacturing  Company  at  Lexington,  Indiana.  Passing 
any  counterfeit  bank  note  knowingly  was  to  be  punished  by  a  fine  of  three 
times  the  value,  and  twenty-five  to  fifty  lashes  on  his  or  her  bare  back. 

The  Bank  of  Vincennes  was  adopted  as  the  State  Bank  of  Indiana,  until 
October  i,  1835,  by  a  law  of  January  i,  1817.  An  additional  capital  of 
$1  million  was  to  be  raised,  of  which  $375,000  was  reserved  for  the  State. 
Arrangements  were  made  for  receiving  subscriptions  all  over  the  State. 
Branches  were  to  be  established.  The  Farmers'  and  Mechanics'  Bank  might 
become  a  branch.  Three  State  directors  were  to  be  elected  by  the  Legislature, 
and  a  greater  number  when  the  State  should  subscribe  more,  but  never  more 
than  five  out  of  fifteen.  The  greatest  amount  which  it  might  be  called  upon 
to  lend  the  State  was  $50,000  for  five  years.     No  director  might  borrow  more 


INFLATION  IN  THE  MISSISSIPPI  l^ ALLEY. 


93 


than  $3,000  at  one  time,  or  have  endorsements  in  the  bank  for  more  than 
$10,000.  December  ^ist,  the  State  renounced  its  right  to  subscribe  2,500 
shares  in  the  Farmers'  and  Mechanics'  Bank. 

Before  the  war  of  181 2  money  was  scarcely  ever  seen  in  Illinois,  the  skins 
of  animals  supplying  its  place.  The  money  which  was  brought  in  after  the 
war  turned  the  heads  of  the  people  so  that  by  1819  the  whole  country  was 
in  a  rage  for  speculation."*  At  that  period  "the  country  was  flooded  with 
bank  notes,  good,  bad,  and  indifferent.  Many  counterfeit  notes  were  in  cir- 
culation.! 

The  custom  was  to  make  contracts  in  "  trade  at  trade  rates,"  which  was 
a  system  of  barter,  and  displaced  money  just  as  it  had  done  in  the  colonies. 
Factory  goods  from  New  England  and  Kentucky  reached  that  region  about 
1818,  and  the  domestic  textile  industry  ceased.  J  Until  1833  there  was  no 
legal  limit  to  the  rate  of  interest.  The  common  rate  by  contract  was  about  50 
per  cent.  §  A  law  of  the  Territory,  January  11,  181 6,  imposed  very  heavy  pen- 
alties on  counterfeiting,  a  peculiar  feature  being  that  the  law  applied  whether 
the  bank  whose  notes  were  counterfeited  was  in  existence  or  not.  December 
28,  1816,  the  Bank  of  Illinois  at  Shawneetown  was  incorporated,  with  a 
capital  of  $300,000,  of  which  the  State  might  take  one-third ;  to  last  until 
1837.  It  was  never  to  suspend  under  a  penalty  of  12  per  cent.  It  is  said  of 
it  in  its  earlier  period  that  it  was  "so  well  managed  that  neither  the  govern- 
ment nor  any  one  else  lost  by  it."||  The  Bank  of  Kaskaskia  was  incor- 
porated by  the  Legislative  Council  of  the  Territory  January  9,  18 18.  Its 
capital  was  $300,000.  It  was  to  begin  when  $50,000  were  subscribed  and 
$10,000  paid  in,  and  to  last  until  1838.  On  the  same  day  the  Bank  of 
Edwardsville  was  incorporated  with  a  capital  of  $300,000,  of  which  one-third 
might  be  taken  by  the  State.  It  was  to  begin  when  $10,000  were  paid  in. 
Upon  subscription,  $5  were  to  be  paid  in  in  specie  or  "bank  bills  which  will 
command  the  same."  It  was  to  last  until  1838.  In  the  charters  which  were 
framed  on  the  model  of  that  of  the  Bank  of  the  United  States,  the  provision 
that  the  debts,  exclusive  of  deposits,  should  never  exceed  a  certain  amount, 
presents  a  great  number  of  variations.  Apparently  it  was  often  not  under- 
stood. In  this  charter  the  clause  reads  that  the  debts  ' '  shall  not  exceed  twice 
the  amount  of  their  capital  stock  actually  paid  over,  and  above  the  moneys 
then  actually  deposited  in  the  bank  for  safe  keeping."  It  was  never  to  sus- 
pend under  a  12  per  cent,  penalty. 

On  the  same  day  the  city  and  Bank  of  Cairo  were  also  incorporated.  The 
owners  of  the  point  of  land  at  the  junction  of  the  rivers  are  named,  and  their 
opinion  is  recorded  that  "no  position  in  the  whole  extent  of  these  western 
States  is  better  calculated  as  respects  commercial  advantages,  and  local 
supplies,  for  a  great  and  important  city;"  but  the  inundations  are  a  draw- 
back and  dykes  are  needed.  The  proprietors  desire  to  devote  one-third  of 
the  proceeds  of  land  sales  to  dykes,  etc.,  and  two-thirds  to  banking.     They 


*  Ford  ;  Illinois,  43. 

S  Ford,  a'!2 


t  Reynolds  ;  Illinois,  11). 


t  Reynolds,  44. 


t  Edward's  Edwards,  165. 


94 


A  HISTORY  OF  BANKING. 


t 


iii 


are  incorporated  by  this  act,  as  the  president,  directors,  and  company  of  the 
Bank  of  Cairo,  for  thirty  years.  Streets  and  lots  are  to  be  laid  out  and  the 
price  of  the  latter  is  limited  to  $150  each.  Of  this  sum,  one-third  is  set 
apart  for  a  fund  for  the  improvement  of  the  city,  and  the  other  two-thirds 
goes  into  the  capital  of  the  bank,  half  of  it  belonging  to  the  purchaser  and 
half  to  the  company.  The  bank  is  to  be  organized  when  500  lots  are  sold, 
payment  being  due  in  three  installments  within  six  months.  The  bank  is 
to  be  at  Kaskaskia  and  the  lots  are  to  be  distributed  "by  lottery."  The 
debts  over  the  specie  paid  into  the  bank  are  never  to  exceed  twice  the 
paid  up  capital.  The  capital  of  the  bank  is  never  to  exceed  $500,000,  and  it 
is  never  to  suspend  under  a  penalty  of  12  per  cent. 

A  Bank  of  the  State  of  Illinois  was  incorporated  March  22,  1819,  but  the 
charter  was  immediately  repealed  and  no  action  was  taken  under  it. 

The  public  lands  were  sold  at  this  time  at  $2  per  acre,  $80  to  be  paid  on 
a  quarter  section  at  the  time  of  purchase,  with  a  credit  of  five  years  for  the 
remainder.  It  was  expected  that  ine  rapid  settlement  of  the  country  would 
enable  sales  to  be  made  at  an  advance  before  the  expiration  of  the  credit. 
The  system  therefore  stimulated  speculation,  and  everybody  in  the  Territory 
was  jobbing  in  land.  From  18 14  to  181 8  we  have  the  testimony  of  a  man 
who  was  engaged  in  it  that  the  most  profitable  business  was  the  commerce 
in  land.  The  country  was  rapidly  improving  ;  immigration  was  flowing 
in;  "bank  paper  was  circulating  in  great  abundance."*  In  the  next  two 
years  the  tide  of  immigration  declined  and  an  act  of  Congress  of  April  24,  1820, 
abolished  credit  for  land  after  July  ist.  Before  any  purchaser  could  enter 
land,  he  must  produce  to  the  register  of  the  land  office  a  receipt  from  the 
receiver  of  public  moneys  of  the  district  for  the  amount  of  the  purchase 
money.  At  that  time  %22  millions  were  due  the  Treasurer  of  the  United  States 
for  land  bought  on  credit.  The  transactions  in  the  land  office,  during 
the  speculation,  stimulated  the  issues  of  the  banks,  and  the  govern- 
ment was  parting  with  the  lands  in  return  for  a  credit  in  these  banks  which 
was  almost  entirely  unavailable.  We  find  the  president  of  the  Shawnee- 
town  Bank  writing  to  Ninian  Edwards,  May  25,  1819,  that  the  receiver  at 
Kaskaskia  takes  his  notes  one  day  and  refuses  them  the  next.  The  Bank  of 
Missouri  is  as  bad  or  worse.  It  lately  took  $12,000  in  specie  from  his  bank. 
The  publ\c  deposits  give  the  Bank  of  Missouri  great  strength,  which  it 
abuses.  He  expresses  sympathy  with  the  Bank  of  Edwardsville.f  These 
banks  being  all  engaged  in  the  same  operations,  and  all  equally  frail,  never 
dared  press  upon  each  other;  but  whenever  the  Treasury,  or  a  deposit  bank, 
or  the  Bank  of  the  United  States,  drew  upon  them  for  their  debt  to  the  Uni- 
ted States,  the  whole  combination  must  fall  like  a  card  house. 


*  Reynolds,  no. 


t  cdwarda  Papen,  156, 


it 
1; 


CHAPTER  VII. 

The  Crisis  on  the  Atlantic  Coast. 

HE  Bank  of  the  United  States,  'n  its  internal  administration,  was 
found  to  be  approaching  a  crisis  in  July,  1818.*  On  the  20th, 
the  directors  ordered  a  reduction  of  discounts  at  Philadelphia, 
Baltimore,  Richmond,  and  Norfolk,  to  the  aggregate  amount 
of  $5  millions.  Amongst  the  reasons  given,  the  delinquency 
of  the  State  banks  in  paying  their  balances  is  one  of  the  foremost.  October 
30th,  a  report  was  made  to  the  directors  that  these  reductions  had  been 
only  partially  carried  out. 

The  Bank  resolved  to  insist  upon  further  reductions,  to  get  specie  from 
abroad,  silver  being  then  at  ten  per  cent,  premium,  and  rapidly  exported,  and 
to  draw  $550,000  in  specie  from  the  West.  The  local  currencies  being  now 
very  unequal  again  and  the  Bank  itself  falling  into  distress,  the  task  of  equal- 
izing the  currencies  was  given  up.  August  28th,  it  was  resolved  to  take  no 
branch  notes  save  at  the  branch  which  issued  them ;  but  the  use  of  branch 
drafts  was  extended,  with  the  same  effect.  They  led  to  the  device  of  draw- 
ing and  re-drawing  between  the  branches  what  were  called  "race  horse 
bills,"  which  combined  the  qualities  of  accommodation  paper  and  endless 
renewals.  They  tended  to  draw  the  capital  of  the  Bank  away  from  the 
sounder  and  more  conservative  branches  to  the  weaker  and  more  reckless 
ones. 

The  directors  ordered,  October  20th,  that  all  discounts  on  stock  above 
par  should  be  reduced,  as  to  that  excess,  25  per  cent,  every  sixty  days,  and 
that  in  the  meantime  collaterals  should  be  demanded  for  the  excess.  Never- 
theless, on  the  6th  November,  another  vote  was  passed  in  the  interests  of 
stock  jobbing,  which  allowed  the  president  and  cashier  to  accept  the  note 
and  hypothecation  of  the  buyer  in  place  of  those  of  the  seller.  During 
November  and  December,  the  discounts  were  greatly  reduced. 

*  In  the  historj  of  the  Bank,  which  is  here  given,  we  follow  the  report  of  1819  ind  Cheves's  report  of  i8u,  presenting 
the  internal  history  of  the  Bank  in  its  chronological  position,  although  it  must  be  remembered  that  the  facts  were  not  known 
,to  the  public  until  those  reports  were  published. 


m 


i 


« 


1 


!' :.' 


i, 


t  z 


1 1 


M    W 


;!l 


It 

i 


96 


A  HISTORY  OF  BANKING. 


It  appears  that  there  was  a  scheme  on  foot  for  an  irredeemable  govern- 
ment issue.*  Niles  became  convinced  that  there  was  such  a  scheme,  and  in 
the  following  April  he  said:  "To  speak  plainly,  let  who  be  oflFended  that 
may,  let  any  power  be  exerted  against  us  that  can,  we  express  an  entire 
conviction  of  the  belief  that  certain  great  proprietors  of  the  stock  of  the  Bank 
of  the  United  States,  with  other  speculators  having  a  powerful  influence  on 
money  affairs,  aided  perhaps  by  certain  officers  of  government,  are  enrolled 
for  a  common  exertion  to  bring  about  a  suspension  of  specie  payment  by 
the  establishment  of  a  paper  medium."  Such  a  national  currency  of  paper 
he  called  "the  consummation  of  evils. "  December  7th,  a  meeting  was  held  in 
Philadelphia,  Matthew  Carey  in  the  chair,  which  appointed  a  committee  to 
draft  a  memorial  to  prohibit  the  exportation  of  specie.  It  fell  through  and 
nothing  was  done,  but  a  resolution  to  that  effect  was  introduced  in  the 
Senate,  f 

January  13,  181 8,  the  Bank  petitioned  for  an  amendment  to  the  charter 
to  relieve  the  president  and  cashier  from  the  labor  of  signing  the  notes.  This 
was  not  granted  because,  as  the  session  went  on,  more  and  more  dissatis- 
faction was  felt  with  the  action  of  the  Bank,  and  the  growing  disorder  of 
the  currency.  The  Senate  passed  a  resolution,  April  1 5th,  that  the  Secretary 
of  the  Treasury  should  inquire  and  report  at  the  next  session  In  what  manner 
the  installments  had  been  paid.  Numerous  other  propositions  for  investi- 
gating the  Bank  were  made,  but  they  came  to  nothing.  The  one  just  men- 
tioned produced  little  result,  for  the  Secretary  replied,  in  f  ecember,  by 
simply  enclosing  a  letter  from  Jones,  the  president  of  the  Ban»c,  which  con- 
tained little  information. 

Spencer  of  New  York  introduced  a  resolution,  in  the  House  of  Represent- 
atives, November  25,  18 18,  for  a  Committee  to  investigate  the  Bank  and 
learn  whether  it  had  violated  its  charter.  Such  a  Committee  was  appointed, 
and  at  once  entered  on  an  energetic  investigation.  It  reported,  January  i6th, 
giving  a  history  and  criticism  of  the  Bank,  and  laying  before  Congress  a 
mass  of  documents  and  statistics  which  embodied  the  results  of  the  invest- 
igation as  to  the  facts.  The  Committee  found  that  the  charter  had  been 
violated  in  four  points :  i . — The  Bank,  having  sold  $2  millions  of  public  stocks 
in  England  in  order  to  buy  specie,  and  the  Secretary  of  the  Treasury  desiring 
to  redeem  the  stocks,  the  Bank  had  bought  in  the  market  and  delivered  to 
him  that  amount  at  a  loss  of  $54,264,  rather  than  disturb  the  arrangement  in 
England,  t  2. — The  installments  had  not  been  paid  as  the  charter  provided 
that  they  should  be.  3. — Dividends  had  been  paid  to  stockholders  who 
had  not  paid  the  installments  on  their  shares.  This  was  forbidden  by  the 
charter.  4. — Persons  had  been  allowed  to  cast  over  thirty  votes  each  by  the 
device  of  proxies.  The  Committee  proposed  no  legislation  except  an  act 
requiring  that  any  person  who  offered  over  thirty  votes  at  an  election  in  the 

*  See  Niles,  October  ?d,  and  November  7th.    Perhaps  his  exposure  of  it  helped  to  frustrate  it. 
t  Gouge ;  Journal  of  Banking,  a88. 
t  See  page  104. 


THE  CRISIS  ON  THE  ATLANTIC  COAST. 


97 


Bank  should  make  oath  that  he  was  not  the  owner  of  the  shares.    Such  an 
act  was  passed  March  3,  1819. 

Spencer  proposed  resolutions  to  withdraw  the  public  deposits  from  the 
Bank,  to  refuse  to  receive  its  notes  at  the  Treasury,  and  to  order  the  Attorney- 
general  to  cause  a  scire  facias  to  be  issued  for  the  revocation  of  the  charter, 
unless  the  Bank  should,  before  July  1st,  accept  twelve  important  amendments 
of  it.  Various  other  propositions  c;  greater  severity  and  more  peremptory 
action  against  the  Bank  were  proposed,  but  they  all  failed  to  pass.  The 
opponents  of  the  Bank  claimed  that  over  forty  members  of  Congress  were 
stockholders,  and  that  a  far  greater  number  were  interested  on  the  side  of 
the  Bank. 

At  a  stockholders'  meeting  in  November,  a  committee  recommended 
that  the  branches  should  be  diminished  in  number,  as  the  advantage  of  the 
Bank  might  require.  In  the  following  spring,  J.  Q.  Adams  expressed  the 
opinion  that  the  government  was  the  party  most  interested  in  the  continuance 
of  the  Bank  and  that  the  interest  of  the  stockholders  would  be  to  surrender 
the  charter.* 

On  the  receipt,  in  Philadelphia,  of  the  report  of  Spencer's  committee, 
William  Jones,  the  president  of  the  Bank,  "fled  in  affright  from  the  insti- 
tution."! Langdon  Cheves  of  South  Carolina  was  elected  president  March 
6,  1819.  In  September,  1822,  he  laid  before  the  stockholders  at  their  triennial 
meeting  an  exposition  of  the  state  of  the  Bank  as  he  found  it,  and  a  history 
of  the  steps  by  which  he  restored  it.  "It  was  not"  he  says,  "until  the 
moment  I  was  about  to  commence  my  journey  to  Philadelphia,  that  I  was 
apprised  by  a  friend,  who  had  been  a  member  of  the  preceding  Board,  that 
he  feared  that,  in  a  few  months  the  Bank  would  be  obliged  to  stop  payment." 
"In  Philadelphia  it  was  generally  expected."  Curtailments  were  at  once 
ordered  everywhere  except  at  New  York  and  Boston,  where  there  was  no 
room  for  them,  but  the  branches  at  those  places  were  obliged  to  reduce  their 
business,  being  overwhelmed  by  the  issues  of  the  South  and  West  which 
were  not  restrained.  "The  debt  due  in  Kentucky  and  Ohio,  instead  of 
being  reduced,  was  within  this  period  [winter  of  1818-9]  actually  increased 
upwards  of  half  a  million  of  dollars." 

At  the  parent  bank  "all  the  funded  debt  which  was  salable  had  been 
disposed  of  and  the  proceeds  exhausted.  The  specie  in  the  vaults  at  the 
close  of  the  day  on  the  ist  of  April,  1819,  was  only  $126,745,  and  the  Bank 
owed  to  the  city  banks,  deducting  balances  due  to  it,  an  aggregate  balance 
of  $79, 125.  It  is  true  there  were  in  the  mint  $267,978,  and  in  transitu  from 
Kentucky  and  Ohio  overland  $250,000,  but  the  Treasury  dividends  were 
payable  on  that  day  to  the  amount  of  nearly  $500,000  and  there  remained  at 
the  close  of  the  day  more  than  one-half  of  the  sum  subject  to  draft,  and  the 
greater  part,  even  of  the  sum  which  had  been  drawn  during  the  day  remained 
a  charge  upon  the  Bank  in  the  shape  of  temporary  deposits  which  were 


•  5  Adams  Diary,  39. 


t  Gouge ;  Journal  of  Banking,  299. 


I 


98 


A  HISTORY  OF  BANKING. 


U 


i<      i 


111  f 


'■  •     I 


^ 


f  I 


almost  immediately  withdrawn.  Accordingly,  on  the  lath  of  the  same 
month  the  Bank  had  in  its  vaults  but  $71,522,  and  owed  to  the  city  banks  a 
balance  of  $196,418,  exceeding  the  specie  in  its  vaults  $124,89;.  It  must  be 
again  remarked  that  it  had  yet  the  sum  before  mentioned  in  the  mint  as  well 
as  the  sum  in  transitu  from  Ohio  and  Kentucky.  This  last  sum,  $2';o,ooo, 
arrived  very  seasonably  on  the  next  day  or  a  day  or  two  after.  The  Bank 
in  this  situation,  the  office  at  New  York  was  little  better  and  the  office  at 
Boston  a  great  deal  worse.  At  the  same  time  the  Bank  owed  to  Baring 
Brothers  &  Co.  and  to  Thomas  Wilson  &  Co.  nearly  $900,000  which  it  was 
bound  to  pay  immediately,  and  which  was  equivalent  to  a  charge  upon  its 
vaults  to  that  amount.  It  had,  including  the  notes  of  the  offices,  a  circulation 
of  $6  millions  to  meet."  "In  the  office  at  Baltimore,  of  which  James  A. 
Buchanan  was  president  and  J.  W.  McCulloch  was  cashier,  there  were  nearly 
three  millions  of  dollars  discounted  or  appropriated  without  any  authority, 
and  without  the  knowledge  of  the  Board  of  the  office,  or  that  of  the  parent 
Bank,  S.  Smith  and  Buchanan,  of  which  firm  J.  A.  Buchanan  was  a  member, 
James  W.  McCulloch,  and  George  Williams  (the  latter  a  member  of  the  parent 
Board  by  the  appointment  of  the  government)  had  obtained  of  the  parent 
Bank  discounts  in  the  regular  and  accustomed  manner  to  the  amount  of 
$1,957,700  on  a  pledge  of  18,290  shares  of  stock  of  the  Bank,  These  men, 
without  the  knowledi,^e  of  either  Board,  and  contrary  to  the  resolve  and 
orders  of  the  parent  Bank,  took  out  of  the  office  at  Baltimore  under  the  pretense 
of  securing  it  by  pledging  the  surplus  value  of  the  stock  already  pledged  at  the 
parent  Bank  for  its  par  value  and  more,  and  other  like  surpluses  over  which  the 
Bank  had  nocontrol,  the  sum  of  $1,540,000,  •  *  *  When  this  stupendous 
fraud  was  discovered,  attempts  were  immediately  made  to  obtain  security,  and 
it  was  nominally  obtained  to  the  amount  of  $900,000,  It  was  probably  really 
worth  $500,000.  *  *  *  The  losses  sustained  at  the  office  in  Baltimore 
alone,  the  great  mass  of  which  grew  out  of  this  fraud,  and  others  connected 
with  it,  have  been  estimated  at  the  immense  sum  of  $1,671,221.  The 
aggregate  of  the  losses  of  the  institution  growing  out  of  the  operations  which 
preceded  the  6th  of  March,  18 19,  exceed  considerably  $3.5  millions.  The 
dividends  during  the  same  time  amount  to  $4,410,000,  Of  this  sum,  $1,348,- 
558  were  received  as  the  interest  on  the  public  debt  held  by  the  Bank,  which 
leaves  as  the  entire  profits  on  all  the  operations  of  banking  the  sum  of 
$3,061,441,  which  is  less  by  at  least  half  a  million  of  dollars  than  the  losses 
sustained  on  the  same  business." 

Of  the  measures  taken  by  himself  he  says:  "The  southern  and  western 
offices  were  immediately  directed  not  to  issue  their  notes  and  the  Bank 
ceased  to  purchase  and  collect  exchange  on  the  South  and  West,  *  *  * 
A  correspondence  with  the  Secretary  of  the  Treasury  was  commenced 
entreating  his  forbearance  and  his  aid,"  This  correspondence  was  personal, 
and  does  not  seem  to  have  been  published  except  in  the  appendix  to  Cheves's 
report  of  1 822,  He  made  known  to  the  Secretary  the  position  of  the  Bank,  and 
asked  that  notice  should  be  given  in  advance  of  Treasury  drafts,  and  also  infor- 


THE  CRISIS  ON  THE  ATLANTIC  COAST. 


99 


mation  of  probable  disbursements  at  designated  places.  He  also  asked  for  the 
use  of  a  ship  of  war  to  bring  specie  from  the  West  Indies,  and  for  advance  infor- 
mation of  intention  to  pay  the  Louisiana  debt.  The  Bank  had  three  grievances : 
I . — The  receipt  of  notes  for  duties  issued  by  other  branches  than  the  one  at  the 
place  of  receipt.  2. — The  obligation  to  pay  Treasury  drafts  on  demand  at  any 
place.  3. — That  debentures  must  be  paid  in  coin  while  duties  were  received 
in  notes.  His  counsel  had  advised  him  that  the  Treasury  was  obliged  by  law 
to  receive  any  notes  of  the  Bank  at  any  place.  Crawford  assented  to  all  his 
requests,  and  expressed  the  opinion  that  there  must  be  either  a  great  bank 
contraction  or  suspension,  and  that  the  Bank  would  be  obliged  to  retire 
nearly  all  its  circulation.  Cheves  thought  that  the  Bank  had  too  many 
branches  and  that  its  greatest  difficulty  was  that  it  had  not  competent 
officers. 

In  April  the  directors  passed  a  resolution  to  inform  the  Secretary  that  the 
Bank  could  not  engage  to  meet  the  Treasury  drafts  without  notice  at  other 
points  than  those  at  which  the  revenue  was  received  or  the  notes  were 
payable.* 

By  continuing  the  curtailments,  restraining  the  southern  and  western 
branches,  collecting  bank  balances,  demanding  time  for  the  transfer  of  gov- 
ernment funds,  paying  debentures  in  the  same  currency  in  which  duties 
were  paid,  and  obtaining  a  loan  in  Europe  of  $2.5  millions,  Cheves  claimed 
to  have  "lifted  the  Bank,  in  the  short  space  of  seventy  days,  from  the  extreme 
prostration  which  has  been  described,  to  a  state  of  safety  and  even  some 
degree  of  power."  The  Dividend  Committee,  in  1822,  found  that  the  aggre- 
gate of  the  losses  was  $3,743,899. 

The  steps  which  Cheves  took  to  draw  the  Bank  back  from  the  verge  of 
bankruptcy  precipitated  a  panic  out  of  doors.  They  were  resisted  and 
criticised  by  the  opponents  of  the  paper  money  system  as  much  as  by  others. 
Niles  strongly  denounced  the  contraction.  "A  policy  directly  opposite  to 
that  of  the  original  makers  of  the  Bank  was  speedily  adopted  and  was 
still  persevered  in.  It  now  issues  none  of  its  own  notes.  Present  pecuniary 
profit  is  sacrificed  to  concentrate  a  power  to  command  it  hereafter;  to 
regulate  the  transactions  of  individuals;  to  govern  the  money  matters  of  the 
nation ;  to  elect  Presidents  of  the  United  States  and  enact  laws  for  the  gov- 
ernment of  the  people. "t  "What  is  the  secret  motive  of  the  present 
proceedings  of  the  Bank  of  the  United  States  is  not  yet  clear  to  us.  It  is 
possible  it  may  grow  out  of  its  necessities  from  the  losses  and  difficulties 
which  it  has  encountered ;  but  this  is  certain,  that  instead  of  equalizing  the 
exchange,  it  has  disordered  it  most  severely,  and  that  the  present  state  of 
things  cannot  be  permitted  to  endure  if  we  can  help  it.  The  people  cannot 
bear  such  a  rapid  retirement  of  the  representatives  of  money  as  the  proceed- 
ings of  the  Bank  of  the  United  States  command." 

In  these  passages  we  see  already  by  what  a  direct  transition  the  mis- 


♦  4  Folio  Finance,  873. 


1 16  Niles,  417. 


100 


A  HISTORY  OF  BANKING. 


fortunes  and  misbehavior  of  the  Bank,  at  this  period,  entailed  upon  it  that 
political  suspicion  and  hostility  which  were  the  moving  forces  in  the  Bank 
war  of  Jackson's  time.  The  two  chief  expectations  of  the  public  from  the 
Bank, — the  equalization  of  the  exchanges,  and  the  prompt  performance  of 
fiscal  services  for  the  government, — had  proved  so  onerous  to  the  Bank  that  it 
:  had  given  up  the  attempt  to  satisfy  them.  The  bitter  disappointment  and 
dissatisfaction  of  the  public  in  respect  to  these  matters  are  also  expressed  in 
the  passages  just  quoted.  The  concessions  which  Crawford  had  made  in 
April  to  the  petitions  of  Cheves  became  known  in  August.*  A  particular 
refusal  by  the  branch  at  Chillicothe  to  honor  a  draft  of  Governor  Cass  of 
Michigan  for  $10,000,  which  he  needed  in  order  to  fulfill  the  stipulations  of 
an  Indian  treaty,  occasioned  especial  bad  feeling.  All  the  old  fashioned, 
JeflFersonian  republicans,  who  had  suppressed  their  prejudices  and  convictions 
in  obedience  to  expediency,  now  turned  fiercely  against  the  Bank.  What 
had  they  obtained  for  their  violation  of  "  principle  "  ?  The  germ  of  the  great 
Jackson  anti-Bank  party  was  planted  here.  "It  is  now  talked  of  as  rank 
nonsense  to  expect  that  this  institution  should  give  us  a  currency  of  equal 
value  in  all  parts  of  the  republic ;  but  who  will  be  bold  enough  to  say  that, 
without  an  expectation  and  a  promise  of  doing  this,  the  Bank  would  have 
been  chartered  ?  It  was  this  and  this  only  which  dragged  the  act  through 
Congress,  over  prostrate  consciences,  if  I  may  be  allowed  the  expression,  and 
the  Constitution  of  the  United  States."! 

The  whole  local  bank  interest  seized  upon  this  dissatisfaction  and  fanned 
it  zealously.  Also  the  would-be  popular  leaders  came  forward  with  their 
quack  remedies.  "The  political  empirics,"  said  Adams,  "are  already  as 
busy  as  spiders  in  weaving  their  tangles  for  Congress  and  the  national 
Executive."!  The  banks  seized  eagerly  upon  the  chance  to  turn  attention 
from  their  own  misdoings  by  complaints  of  the  tyranny  of  the  great  Bank. 
One  outcome  of  this  feeling  and  these  efforts  was  that  several  States  tried  to 
tax  the  Bank  of  the  United  States  out  of  existence.  February  11,  18 18, 
Maryland  laid  a  stamp  tax  on  notes  of  any  bank  doing  business  in  the  State 
and  not  by  or  with  the  authority  of  the  same.  The  tax  was  ten  cents  on  a 
$5  note  and  varying  amounts  on  other  denominations.  It  might  be  commuted 
for  $15,000.  The  Bank  of  the  United  States  paid  no  heed  to  this  law.  In 
the  case  at  law  which  resulted,  §  the  tax  was  held  to  be  unconstitutional  by 
the  Supreme  Court  of  the  United  States.  It  was  held  that  the  Bank  was 
constitutionally  endowed  with  a  right  to  establish  branches  in  any  State. 
These  branches  were  not  taxable  by  the  State,  but  real  estate  owned  by  the 
Bank,  or  the  proprietary  interest  of  citizens  of  the  State  in  it,  might  be 
taxed  like  other  property;  Congress  has  power  to  charter  a  national  bank  as 
one  means  of  carrying  on  the  fiscal  operations  of  the  national  government; 
the  States  cannot  by  taxation  impede  Congress  in  the  exercise  of  any  of  its 
constitutional  powers ;  if  the  end  is  legitimate  and  within  the  scope  of  the 


*  16  NUes,  417. 


t  i9Nile8,  317. 
{  McCuUoch  vs.  Maryland,  4  Wlieaton,  )i6. 


X  4  Adams  Diary,  370. 


THE  CRISIS  ON  THE  ATLANTIC  COAST 


lOI 


Constitution,  any  means  may  be  employed  which  are  appropriate  and  not 
prohibited.  It  remained  uncertain  whether  the  operations  of  discount  and 
deposit  were  included  under  the  affirmation  of  this  decision.  In  Osborn  vs. 
the  Bank  of  the  United  States,*  this  point  was  discussed,  and  it  was  held 
that,  although  it  was  only  as  an  aid  to  the  national  fiscus  that  a  national  bank 
was  constitutional,  yet  it  might  be  a  true  bank,  adopted  and  used  for  this 
purpose,  and  hence  endowed  with  the  power  of  banking,  and  protected  in 
the  same.  Kentucky  and  Ohio  levied  taxes  on  the  branches  in  those  Statesf 
and  Tennessee  established  a  ta.x  as  a  barrier  to  keep  a  branch  out.  J  In  joint 
resolutions  of  the  Georgia  Legislature,  December  i8,  1819,  it  was  affirmed 
that  the  law  of  the  State  taxing  banks  applied  to  the  Bank  of  the  United 
States,  but  the  Treasurer  was  directed  to  suspend  the  execution  of  the  law 
as  to  that  Bank  for  the  present.  § 

In  the  spring  of  1819  the  exchanges  rapidly  grew  worse,  and  so  con- 
tinued through  the  summer.  The  quotations  at  Baltimore  in  August  were, 
in  the  local  currency:  Specie  at  a  small  premium;  Boston,  one  or  two  dis- 
count; Massachusetts  country  banks,  one  to  eight  discount  according  to 
their  repute  in  the  city;  Rhode  Island  and  Connecticut,  two  to  six  discount; 
New  Jersey,  "specie  paying,"  one  or  two  discount;  Philadelphia,  par  to  a 
quarter  premium;  country  notes,  from  one  to  sixty  discount;  "specie  pay- 
ing," one  to  five  discount;  Delaware,  "specie  paying,"  one  discount;  ihe 
rest  eight  to  fifty;  Maryland  country  notes,  "specie  paying,"  three  to  six 
discount;  others,  twelve  to  forty;  District  of  Columbia,  one  discount;  old 
banks  of  Virginia,  one  and  a  half  to  two  discount;  Bank  of  the  Valley,  two 
and  a  half  to  three;  unchartered,  seven  and  a  half  to  twenty-five;  North 
Carolina,  twenty  to  twenty-five  discount,  nominal;  South  Carolina,  eight  to 
ten  discount;  Georgia,  seven  to  eight  discount;  old  banks  of  Tennessee  and 
Kentucky,  fifteen  discount,  nominal;  new  ones,  twenty  to  twenty-five; 
Ohio,  the  best,  ten  discount,  generally  fifteen  to  twenty,  many  forty  to  fifty ; 
the  rest  of  the  Mississippi  Valley,  fifteen  to  sixty  discount.  || 

Adams'  notes  in  his  Diary,  June  10,  1819,  a  conversation  with  Crawford 
about  the  "operations  of  the  Bank  and  the  gigantic  frauds  practicing  upon 
the  people  by  means  of  these  institutions.  The  banks  are  breaking  all  over 
the  country;  some  in  a  sneaking,  and  some  in  an  impudent  manner;  some 
with  sophisticating  evasion  and  others  with  the  front  of  highwaymen.  *  * 
*  *  Crawford  has  labors  and  perils  enough  before  him  in  the  management 
of  the  finances  for  the  three  succeeding  years.  "^  This  prediction  was  soon 
amply  fulfilled.  The  Secretary  of  the  Treasury  was  drawn  into  most  serious 
difficulty  by  attempting  to  exercise  those  powers  of  supervision  of  banks  and 

•  9  Wheaton,  860.    Sm  p.  154, 
+  See  pages  109, 153. 
X  See  page  146. 

$  An  act  of  South  Carolina,  December  18,  1830,  laying  a  tax  of  one  per  cent,  on  the  dividends  of  the  Banl<  of  the  United 
States  and  all  other  banks,  not  chartered  by  the  State,  was  sustained  by  the  State  Supreme  Court,     (a  Bailey,  654.) 
J  16  Niles,  434. 
^  4  Adams'  Diary,  391. 


i 


■;: 


!! 


!     '? 


if'    I 


loa 


A  HISTORY  OF  BANKING. 


arbitration  between  banks  which  have  been  noticed  above.*  In  order  to 
help  the  banks  of  the  District  of  Columbia  to  resume,  he  distributed  public 
deposits  amongst  them.f  Elsewhere  from  one  end  of  the  country  to  the 
other,  he  acted  on  the  same  policy,  endeavoring  to  coax  or  help  or  re- 
ward and  perhaps  punish.  He  had  bitter  experience  of  the  return  which 
such  action  would  obtain.  Generally  speaking  the  banks  took  everything 
they  could  possibly  extort  from  him  by  any  arguments  or  motives  which 
they  could  bring  to  bear  upon  him,  and  they  yielded  nothing  to  him  because 
he  had  no  power  of  coercion,  and  they  paid  no  heed  to  his  remonstrances, 
pleading,  or  reasoning.  The  inducements  which  were  offered  to  the  western 
banks  to  resume  specie  payments  and  transfer  public  money  to  the  place 
where  it  must  be  expended,  "  were  believed  to  be  both  justifiable  and  suffi- 
cient to  insure  success,  and  the  result  has  proved  that  nothing  was  necessary 
to  the  most  complete  success  but  the  want  of  integrity  in  those  who  had  the 
direction  of  some  of  those  institutions."!  In  1823  an  attempt  was  made  to 
ruin  him  politically,  by  charging  him  with  having  acted  corruptly  in  this 
matter.  Although  it  did  not  succeed,  it  left  behind  an  impression  which  un- 
doubtedly hurt  him  politically.  For  our  purpose  this  incident  is  chiefly  im- 
portant because  it  led  to  the  production  of  a  vast  amount  of  correspondence 
which  reveals  the  operations  of  the  banks  in  1819,  and  also  because  it  fur- 
nishes some  more  links  in  the  series  of  precedents  by  which  the  usage  was 
established  of  arbitration  by  the  Secretary  between  banks.  Crawford,  justi- 
fying himself  for  what  he  had  done,  referred  back  to  action  by  Gallatin,  in 
181 3.  Gallatin  was  a  strong  name,  but  the  precedent  proves  to  have  been 
an  act  by  William  Jones,  acting  Secretary  of  the  Treasury;  in  the  name  of 
Gallatin,  it  is  true.§  May  27,  1813,  Jones  wrote  to  Girard,  referring  to 
measures  taken  by  Gallatin,  in  respect  to  the  public  deposits  in  Girard's 
bank,  to  shield  Girard  against  the  attacks  of  the  incorporated  banks:  "  It  is 
a  particular  province  and  it  has  been  the  practice  of  the  Department  of  the 
Treasury  of  the  United  States  to  direct  the  moneyed  operations  of  the  public 
to  the  preservation  of  credit,  by  maintaining  the  equilibrium  between  the 
moneyed  institutions  of  the  country;  and  as  it  has  protected  your  institution 
by  the  arrangement  alluded  to,  so  it  will  guard  those  institutions  against  any 
undue  pressure  which  the  public  funds  in  your  vaults  may  enable  you  to 
direct  against  them.  I  am  informed  that  you  have  made  some  very  heavy 
and  unnecessary  drafts  of  specie  from  several  banks,  particularly  from  the 
Pennsylvania  and  Farmers'  and  Mechanics'  Banks,  with  indications  of  a  dis- 
position to  interfere,  which  has  excited  considerable  apprehension.  I  there- 
fore deem  it  necessary  to  inform  you  that  a  continuance  of  that  system  will 
induce  the  prompt  application  of  a  specific  remedy."  February  13,  1817, 
Crawford  wrote  to  the  president  of  the  Mechanics'  Bank  of  New  York: 
"The  Secretary  of  the  Treasury  will  always  be  disposed  to  support  the 
credit  of  the  State  banks  and  will  invariably  direct  transfers  from  the  deposits 


*  Sm  page  1 1 . 


t  4  Folio  Finance,  302,  361 .  X  SecreUry  Crawford ;  1813.    4  Folio  Finance,  a6i. 

S  4  Kolia  Finance,  166,  179. 


THE  CRISIS  ON  THE  ATLANTIC  COAST. 


\o) 


of  the  public  money  in  aid  of  their  legitimate  exertions  to  maintain  their 
credit;  but  as  the  proposition  of  the  Bank  of  the  United  States  excludes  the 
deai  of  pressure  on  its  part,  no  measure  of  that  nature  appears  to  be  neces- 
sary at  this  time."*  It  is  evident  that  the  precedent  was  marching  on  very 
steadily.    In  the  hands  of  Jones  it  had  been  formulated  into  a  principle. 

After  speaking  of  the  distress  in  England,  April  lo,  1819,  Nilesgoes  on  to 
describe  the  condition  of  things  here:  "From  all  parts  of  our  country  wc 
hear  of  a  severe  pressure  on  men  of  business,  a  general  stagnation  of  trade,  a 
large  reduction  in  the  price  of  staple  articles.  Real  property  is  rapidly  depre- 
ciating in  its  nominal  value,  and  its  rents  or  profits  are  exceedingly  dimin- 
ishing. Many  highly  respectable  tradesmen  have  become  bankrupt,  and 
it  is  agreed  that  many  others  must  go."  He  goes  on  to  say  that  conlidence 
is  destroyed  and  that  three  percent,  per  month  is  the  rate  for  good  commercial 
paper.f  May  22d:  "There  is  no  remedy,  but  the  reaction  is  hard  to  be 
borne.  The  plain  fact  is  that  wherever  there  is  one  bank  that  attempts  to 
pay  its  debts,  there  must  be  great  distress;  but  in  those  places  where  there 
are  two  or  more,  God  help  the  people !  The  curse  of  borrowing,  of  sulTcring 
'paper  to  do  our  business,'  is  falling  heavily  upon  us."  "With  nearly 
$500  in  notes  of  different  sizes,  and  of  many  old  and  respectable  banks,  in 
his  pocketbook,  the  writer  of  this  article  was  compelled,  on  Saturday  last, 
to  borrow  market  money. "  ' '  Misery  abounds  and  the  neighborhood  of  every 
bank  is  a  neighborhood  of  bankrupts,  positive  or  cipated."  Smith  & 
Buchanan  failed  in  June,  "with  a  crash  which  staggered  the  whole  city  of 
Baltimore  and  will  extend  no  one  knows  how  far.  *  *  *  The  affairs  of 
the  house  appear  to  have  been  desperate  for  many  years,  but  they  were 
Tyrian  merchant  princes  and  princely  expedients  have  they  taken  to  save 
themselves  from  sinking."  They  had  controlled  Baltimore,  socially,  politi- 
cally, and  commercially.^ 

Matthew  Carey  stated  that  of  thirty-seven  merchants  who  signed  a  policy 
of  insurance  at  Philadelphia  in  1799,  twenty-seven  had  become  bankrupt  in 
l822.§  If  the  writers  of  the  time  were  at  all  correct  in  their  opinion  that 
prices  responded  promptly  to  the  inflation  and  contraction  of  the  currency, 
how  was  it  possible  for  anyone  to  do  business  ? 

Of  course  all  this  was  attended  by  great  suflFering  amongst  the  wages 
class.  August  7th  Niles  says:  "  It  is  estimated  that  there  are  20,000  persons 
'*  daily  seeking  work  in  Philadelphia;  in  New  York,  10,000  able-bodied  men 
are  said  to  be  wandering  the  streets  looking  for  it;  and  if  we  add  to  them 
the  women  who  desire  something  to  do,  the  amount  cannot  be  less  than 
20,000."  October  23d,  he  said  that  there  were  7, 288  persons  idleinBaltimoi^. 
In  the  report  of  a  Committee  on  Manufactures  of  the  city  of  Philadelphia, 
quoted  by  him  on  that  date,  it  is  stated  that  trades  which  employed  9,672 
persons  in  1816,  employed  only  2, 137  in  1819.  "  It  is  a  singular  fact,  which 
conclusively  shows  the  pressure  of  the  times,  that  our  master  mechanics. 


Mil 


•  QMOtcd  In  the  Treasury  Report  on  the  removal  of  the  deposits,  December  J,  183  j. 

X  4  Adams'  Diary,  383.  J  13  Niles,  130. 


t  16  Niles,  114. 


m.  h 


H      « 


ri  r!  s 


i  ;i 


104 


w  HISTORY  OF  Banking. 


even  of  the  most  necessary  callings,  such  as  shoemakers,  hatt°rs,  nnd  tailors, 
are  not  doing  more  than  one-half  or  two-thirds  of  the  business  which  they 
did  three  or  four  years  ago."*  Many  artisans  returned  to  Europe. t  As  late 
as  August  3,  1822,  Niles  said,  "  almost  everybody  is  wondering  how  other 
people  live  "  in  Baltimore.  Evidence  of  the  fall  in  prices  is  equally  plentiful, 
in  July,  1820,  it  was  stated  that  houses  which  rented  for  $1,200  before  the 
crisis,  then  rented  for  $4So;  fuel  had  fallen  from  $12  to  $5.50;  flour,  from 
$10  to  $4.50;  beef,  from  twenty-five  cents  to  eight  cents. 

At  this  point  we  must  recall  the  fact  that  the  return  of  peace  in  Europe, 
after  twenty-five  years  of  war,  had  had  great  effect  on  commerce  and 
industry.  The  English  hoped,  upon  the  return  of  peace,  to  recover  all  their 
old  markets.  They  made  very  large  shipments  to  this  country.  Here,  also, 
the  peace  had  been  fatal  to  a  great  many  manufacturing  industries  which  had 
grown  up  under  seven  or  eight  years  of  embargo,  non-intercourse,  and  war. 
The  tariff  of  18 16,  which  was  intended  to  save  them,  did  so  only  to  a  limited 
extent.  These  new  elements  of  trouble  and  confusion  were  complicated 
with  those  already  mentioned.  It  was  the  large  imports  which  furnished 
the  revenue  which  enabled  the  Secretary  of  the  Treasury  to  pay  off  a  part  of 
the  public  stocks  in  the  capital  of  the  Bank.  The  Bank  had  sold  $2  millions 
of  these  stocks  in  England,  and  was  compelled  to  buy  so  much  in  order  to 
put  it  at  his  disposal^  which  was  a  technical  violation  of  the  charter. t 
Crawford  stated  that  the  reason  for  not  letting  the  Bank  buy  public  stocks, 
or  sell  them,  beyond  a  small  limit,  was  to  prevent  it  from  being  able  to 
control  the  credit  of  the  government. 

Niles  had  commenced  a  general  onslaught  on  the  "rag  system  "  in  his 
'  Register"  in  the  spring  of  1818,  and  he  seems  to  have  had  no  little  influ- 
ence upon  public  opinion,  in  connection  with  banks  and  the  great  Bank. 
Banks  were  being  multiplied  on  every  hand  and  those  which  existed  were 
growing  worse  and  worse.  We  have  here  the  explanation  of  the  fierce  de- 
nunciations of  banksj  in  which  many  men  who  lived  through  that  period  in- 
dulged, and  of  the  suspicion  and  prejudice  against  them,  which  they  never 
overcame.  Niles's  expressions  about  banks  are  almost  fanatical.  He  talks 
of  them  as  one  would  talk  of  gambling  hells.  It  is  impossible  to  understand 
this  without  observing  what  the  institutions  were  which  he  knew  under  the 
name  of  "banks,"  and  how  they  weie  treating  the  public.  He  states  that 
four  banks  in  Maryland,  whose  notes  were  at  from  six  per  cent,  to  ten  per 
cent,  discount,  had  eight  hundred  foreclosure  suits  on  the  docket.  §  He 
mentions  going  to  a  broker's  office  to  exchange  some  notes  issued  at  a  dis- 
tance, and  meeting  a  man  who  was  trying  to  buy  bank  notes,  arid  grumbling 
that  they  were  not  cheaper.  This  grumbler  was  the  president  of  the  bank 
whose  notes  he  was  trying  to  buy.||  He  thus  describes  in  a  supposition  the 
actual  customs  of  banking  at  the  time :  "  Let  us  suppose,  and  after  what  we 
know  of  banks,  we  may  suppose  anything  !  a  majority  of  the  board  atPhila- 


18  Niles,  43j;  August  ig,  1810. 
§  14  Niles.  140. 


t  16  Niles,  435. 


t  4  Folio  Finance,  532. 
!  i4Niies,  135. 


THE  CRISIS  ON  THE  ATLANTIC  COAST. 


lOS 


delphia,  only  thirteen  men,  resolve  to  get  rich,  or  if  rich,  to  get  richer.  They 
agree  among  themselves  that  the  Bank  shall  lend  to  each  of  them,  the  moderate 
sum  of  $200,000,  as  a  permanent  accommodation  for  twelve  months.  Well, 
the  amount  being  passed  to  their  credit,  they  issue  a  peremptory  order  to  the 
officers  of  the  Bank,  and  its  offices,  that  they  shall  not  issue  any  more  of  their 
own  notes.  Within  two  months,  money  becomes  scarce  to  those  accustomed 
to  a  sufficiency  of  it — for  all  the  prudent  State  banks  are  justly  alarmed  and  know 
not  what  to  do,  except  to  get  in  their  debts  as  rapidly  as  they  can;  and  in  two 
months  more  every  species  of  property  has  a  diminished  nominal  value  com- 
pared with  what  it  was,  of  thirty-three  and  one-third  per  cent.,  and  lawyers 
and  sheriffs  are  '  over  head  and  ears '  in  business.  The  gciitleiiicn  then  buy 
whatever  they  choose  to  speculate  in,  and  getting  all  things  sung,  they  dis- 
count freely,  and  seem  almost  to  throw  their  bank  notes  about  in  the  street. 
The  State  banks,  anxious  to  retrieve  lost  time  and  make  a  good  dividend,  do 
the  same  thing,  and  money  becomes  instantly  plenty.  Property  speedily 
assumes  a  price  beyond  what  it  had  before  its  fall ;  the  house  or  piece  of  land, 
which  sold,  'a  little  month  ago'  for  $1,000,  is  valued  at  $i,soo,  and  the 
geiitlciucn  speculators  then  sell;  offering  to  purchasers  assistance  from  the 
Bank,  if  needful  to  make  a  good  bargain  for  themselves.'"" 

Among  the  petitions  presented  to  the  Pennsylvania  Legislature,  in  January, 
1819,  were  several  about  banks.  Amongst  the  rest,  one  "to  annihilate  the 
charters  ot  all  the  banks  in  this  Commonwealth;  to  make  the  property  of  the 
stockholders  liable  for  the  debts  of  the  company,  and  to  tax  the  Bank  of  the 
United  States  and  branches." 

The  country  bank  notes  of  Pennsylvania  were  contracted  as  follows:  18 16, 
$4.7  millions;  1817,  $3.7  millions;  1818,  $3  million;  1819,  $1.3  millions.f  The 
consequence  was  that  farms  and  houses  were  being  rapidly  transferred  to  the 
banks  which  had  made  loai  s  upon  them.  The  ground  of  exasperation  was 
that  the  banks  had  loaned  upon  them  nothing  but  bits  of  paper,  multiplied 
until  all  prices  had  risen,  so  that  now,  in  the  revulsion,  the  transfer  of  the 
property  appeared  as  the  consequence  of  a  mere  financial  thimblo-rig. 
indeed  it  was  little  else.  The  system  was  not  even  honest  gambling.  It 
was  gambling  in  which  one  party  had  never  put  up  any  stakes.  The  banks 
had  adopted  all  sorts  oPdevices  to  avoid  any  risk  of  being  obliged  to  redeem 
their  issues,  and  had  indeed  employed  in  banking,  devices  which  belong 
only  to  gambling.  Then  when  the  trouble  came,  they  "suspended  " — that  is 
to  say,  they  withdrew  from  the  performance  of  their  obligations  while  insist- 
ing on  the  payment  of  debts  to  them.  The  Vincennes  Bank  of  Indiana  issued 
notes  payable  nine  months  after  date  at  Vcvay.  "Nine  months  "  was  printed 
at  the  top  in  small  letters,  so  as  not  to  be  noticed.  The  report  of  a  Committee 
on  Currency  to  the  New  York  Legislature,  February  24,  18 18,  described  some 
of  the  devices  by  which  banks  had  evaded  their  responsibilities,  'as  follows: 
"By  adopting  a  variety  of  schemes  to  get  their  notes  into  circulation,  such 


^^1 


I  ih 


If 


*  16  Niles,  390. 


t  Raguet's  Report  on  the  Distress. 


I'  .-.'. 


io6 


//  HISTORY  OF  BANKING. 


as  placing  a  partial  fund  in  a  distant  bank  to  redeem  their  paper,  and  after 
the  fact  becomes  generally  known  that  their  paper  is  at  par  in  that  quarter, 
issuing  an  emission  of  notes  signed  with  ink  of  a  different  shade,  at  the  same 
time  giving  secret  orders  to  said  bank  not  to  pay  the  notes  thus  signed,  and 
subjecting  the  owners  ofthem  to  loss  and  disappointment."  "Others  *  *  * 
have  issued  a  species  of  paper  called  '  facility  notes,'  purporting  to  be  payable 
in  either  money,  country  produce,  or  anything  else  that  has  body  or 
shape,  and  thereby  rendering  their  name  appropriate  only  by  facilitating  the 
ruin  of  those  who  are  so  unfortunate  as  to  hold  them."  "  A  person  this  day 
paid  us,"  says  Niles,  "a  note  which  he  received  as  having  been  issued  in 
Philadelphia,  and  so  it  was;  but  unfortunately  for  him  it  was  'New  Phila- 
delphia' the  'New'  printed  very  small  and  the  'Philadelphia'  very 
large.'"*  One  of  the  commonest  abuses  in  the  banks  was  that  the  directors 
were  supposed  to  have  a  right  to  large  loans.  In  cases  where  the  banks  had 
been  organized  in  the  way  which  has  been  above  described,  this  was  a  matter 
of  course.  The  men  who  formed  the  bank,  and  gave  their  stock  notes  for 
the  stock,  borrowed  the  circulation  as  soon  as  it  was  printed,  and  had  the 
advantage  of  holding  it  in  the  first  hand;  hence  Niles  says,  apropos  of  the 
City  Bank  of  Baltimore,  in  which  all  the  officials,  except  one  clerk  and  the 
porter,  had  taken  out  loans  amounting  to  $426,083,  and  where,  if  the  loans 
to  the  directors  were  included,  the  whole  group  had  borrowed  $100,000 
more  than  the  whole  capital:  "This  is  the  great  principle  of  modern  bank- 
ing ;  a  cheat,  a  bubble,  a  machine  for  the  exclusive  benefit  of  a  few  scheming 
men."t 

The  bank  which  Niles  was  fond  of  using  as  a  proverb  was  the  Owl  Creek 
Bank  of  Ohio,  or,  as  he  nicknamed  it,  the  "  Hoo  Hoo  Bank."  This  bank 
gave  notice  that,  in  order  to  counteract  the  injurious  tendency  of  the  United 
States  branch  banks  in  that  State,  it  had  thought  proper  to  follow  the  exam- 
ple of  other  banks  and  suspend  payment.  | 

The  Bank  of  the  State  of  North  Carolina  tendered  an  oath  to  all  persons 
who  demanded  specie  of  it  that  the  notes  had  not  been  exchanged  or  bought 
up  for  the  purpose  of  making  the  demand.  The  Bank  of  Darien,  Georgia, 
forced  everybody  demanding  specie  to  take  an  oath  before  a  justice  of  the 
peace  in  the  Bank,  to  each  and  every  note,  that  it  was  his  own,  that  he  was 
not  an  agent  for  any  other  person,  and  this  oath  must  be  taken  in  the 
presence  of  at  least  five  directors  and  the  cashier.  If  they  could  not  be  found 
together,  the  demand  could  not  be  made.  The  sum  of  $1.37  1-2  on  each 
note  must  also  be  paid  on  the  spot  by  the  person  making  the  demand. 

A  volume  might  be  filled  with  facts  and  incidents  of  this  kind  from  this 
period.     They  account  for  language   like  the  following  about  the  abuse 


*  15  Niles,  261. 

t  17  Niles,  138. 

X  16  Niles,  131.  In  1837,  he  recalled  a  story  ot  a  mysterious  individual  who  entered  the  Owl  Creek  Bank  and  demanded 
to  have  some  notes  redeemed  in  specie.  He  was  told  that  the  bank  had  neither.  He  then  demanded  Eastern  funds. 
"No  Eastern  funds  on  hand,"  was  the  brief  reply.  "  Can  you,"  says  the  mysterious  person,  "give  me  tolerably  well-exe- 
cuted counterfeited  notes  on  solvent  banks  ?  I  would  prefer  them  to  this  trash."  They  started  to  expel  him,  when  he 
threw  down  a  hoot  owl,  saying  that  he  had  just  killed  their  president.    (52  Niles,  85.) 


i   I 


THE  CRISIS  ON  THE  ATLANTIC  COAST. 


107 


of  banking;  "We  have  had  melancholy  proof  of  this  at  the  sacrifice  of  mil- 
lions on  millions  of  dollars,  by  the  industrious  poor,  to  pamper  the  pride  and 
glut  the  inordinate  appetites  of  speculating  scoundrels.  I  use  these  words 
deliberately.  Notwithstanding  all  the  shavings,  quirkings,  twistings,  and 
fraud,  which  the  people  generally  are  acquainted  with,  I  feel  authorized  to 
say,  that  the  history  of  modern  banking,  particularly  in  the  middle  and 
western  sections  of  the  United  States,  is  as  yet  but  very  imperfectly  known. 
The  imagination  of  an  honest  man  can  hardly  conceive  the  stupendous  vil- 
lainies that  have  been  contrived,  and  which  must,  and  will  forever  exist  in 
every  country  where  paper  can  be  forced  upon  the  people  in  lieu  of 
money."*  And  again:  "It  has  always  been  my  opinion  that  of  all  evils 
which  can  be  inflicted  upon  a  free  State,  banking  establishments  are  the 
most  alarming.  They  are  the  vultures  that  prey  upon  the  constitution  and 
rob  the  body  politic  of  its  life  blood,  "f  "  I  have  a  letter  from  an  honest 
man  who  was  coaxed  to  his  ruin  by  a  bank.  *  *  *  Driven  to  the  wilds 
of  the  West,  he  laments  the  friends  of  his  youth  and  loss  of  society,  details 
the  hardships  that  belong  to  a  new  settler,  and  enumerates  many  privations, 
but  '  blesses  God  that  he  is  out  of  the  reach  of  a  bank. '"J 

Let  it  not  be  supposed  that  the  passages  which  have  been  quoted  contain 
the  rant  of  a  crank  or  an  agitator.  Niles  often  dogmatized  about  things 
which  he  did  not  understand.  He  was  opinionated  and  prejudiced,  but  of 
his  absolute  integrity  of  mind  and  heart  there  is  no  question.  He  uttered 
the  moral  indignation  of  an  honest  man.  The  writers  of  the  time  exhaust 
the  adjectives  of  disgust  in  their  attempts  to  describe  the  filth  and  ragged- 
ness  of  the  notes.  The  banks  reissued  them  and  kept  them  in  circulation 
because,  if  they  were  worn  out,  or  became  illegible,  or  were  lost,  that 
meant  that  the  public,  which  had  borrowed  them  out  of  the  bank,  had  to 
pay  back  to  the  bank  true  value  for  them.  This  state  of  things  also  gave 
the  counterfeiter  his  chance,  and  the  literature  and  the  laws  prove  that 
counterfeiting  was  one  of  the  most  lucrative  industries  of  the  time.  There 
were  three  kinds  of  paper  afloat,  i. — Notes  of  regularly  incorporated  banks, 
with  more  or  less  pretense  to  solvency.  2. — Notes  of  banks  which  had  no 
other  existence  than  an  office  room  with  furniture,  an  engraved  plate,  and 
a  bundle  of  paper.  Their  notes  were  kept  out  at  as  great  a  distance  and  for 
as  long  a  time  as  possible;  also  in  as  great  an  amount.     When  they  came 


home,    the  bank  ceased  to  be. 


-Counterfeits  in   enormous  amount; 


although  they  differed  from  the  second  class  only  in  borrowing  a  name 
which  somebody  else  had  invented,  instead  of  inventing  a  new  one. 

The  instances  which  have  been  mentioned  are  the  more  striking  ones  of 
abuse  and  outrage  and  are,  perhaps,  in  so  far,  exaggerated.  There  were 
good  banks,  but  such  made  little  noise  and  have  made  little  mark  on  the 
record.  They  also  were  exceptional.  The  most  interesting  record  of  one  of 
them  which  we  have  found  is  the  following.     It  is  entitled  "An  Anony- 


■t'  *^ 


I'i 


16  Niles,  130. 


+  17  Niles,   19. 


t  14  Niles,   140, 


)ll 


i 


I 


I! 


^i 


i 


1 08 


^  HISTORY  OF  BANKING. 


mous  Communication  containing  the  History  of  Some  Bank  from  1806  to 
1837,  whicli  at  first  was  Managed  very  Conservatively;  No  Renewals,  No 
Accommodation  Paper,  etc."  "  It  was  ascertained  soon  after  the  Bank  was 
fairly  in  operation  that  its  ability  to  discount  had  no  sort  of  connection  with 
oi  dependence  on  the  amount  of  its  capital."  It  required  punctual  payment 
by  other  banks  of  their  notes,  and  so  maintained  its  circulation  by  new  dis- 
counts, while  they,  as  they  gave  extensions,  could  not  circulate  their  notes 
except  by  giving  them  to  agents  who  forced  them  into  circulation  by 
exchanges.  "The  possession  of  capital  was  of  no  use  except  to  inspire 
confidence."  This  being  once  fully  established,  the  capital  was  an  incon- 
venience. It  was  a  trouble  to  invest  it.  The  stockholders  could  have  done 
it  better  individually.  Therefore,  in  July,  1816,  half  the  capital  was  paid 
back  to  the  stockholders  in  specie.  Still  it  suffered  from  the  annoyance  of 
unemployed  capital.  "To  employ  it  in  discounting  commercial  paper, 
experience  had  shown  was  not  sagacious,  as  the  bank's  credit,  which  cost 
nothing,  already  supplied  all  the  demands  of  trade."  It  therefore  lent 
$25,000  of  its  remaining  capital  on  mortgage  in  1821.  The  remaining 
capital  was  §100,000,  of  which  one  quarter  was  thus  invested.  Subse- 
quently a  large  part  of  the  remaining  $75,000  was  lent  on  mortgage.* 

The  banks  brought  loans  to  every  man's  door.  When  a  bank  was  estab- 
lished in  a  country  town  it  became  the  current  foshion  to  get  a  loan  and 
undertake  some  enterprise.  The  need  for  a  loan  did  not  arise  from  a 
growth  of  affairs  up  to  the  point  where  a  need  of  more  capital  was  experi- 
enced. "Not  every  man  is  fit  to  have  credit.  It  is  far  from  being  a  blessing 
to  every  one.  An  education  in  the  use  of  capital  is  needed  before  one  is  fit 
to  use  credit.  This  was  illustrated  by  the  colonial  banks;  it  accounts  for 
such  diatribes  as  we  have  just  read,  and  we  shall  see  it  illustrated  later  in  the 
history  of  the  great  banks  of  the  South  and  West. 

*  In  the  inflation  in  1835,  the  management  of  this  banl<  was  denounced  as  "old  fogy"  and  the  president  was  obliged  to 
sell  out  and  resign.  He  told  the  discontented  stockholders  that  "of  the  two,  he  would  rather  find  a  counterfeit  than  an 
accommodation  note  among  the  bills  receivable."  In  about  four  years  the  bank  became  insolvent.  (Gouge,  Journal  of 
Banking,  310.) 


'oxo:ca.o;D2oEa!;oj;o!;Brovoiia!:o5oro.oiDr.o!;o:oj;oin.o!;o.'io,'!or;OAo;o;io;:o  ,ovo. 


CHAPTER  Vin. 


The  Crisis  in  the  Mississippi  Valley. 


I 


HE  crisis  and  reaction  began  in  the  West  in  tlie  summer  of  1818. 
The  immediate  agent  was  the  Bank  of  the  United  States.  We 
have  noticed  above,*  the  orders  which  were  sent  to  the  west- 
ern branches  from  Philadelphia,  the  effect  of  which  was  to 
transfer  the  capital  from  the  East  to  the  West.  It  may  perhaps 
be  just  to  say  that  but  for  the  Bank  of  the  U'dted  States  the  West  would 
never  have  been  drawn  into  the  inflation.  Tlie  great  Bank,  however,  as  we 
have  seen,  was  in  great  distress  in  1818,  and  was  obliged  to  curtail  its  oper- 
ations in  order  to  save  itself.  On  account  of  its  responsibilities  to  the  Treas- 
ury, it  was  necessarily  the  agent  of  the  correctioti  of  the  mistakes  which  had 
been  made  in  the  West.  As  an  equalizer  of  the  currency,  as  an  agent  for 
the  transfer  of  the  public  funds,  and  as  the  agent  to  discipline  the  State 
banks,  it  was  certain  to  become  extremely  unpopular.  It  appeared  to  all 
the  local  banks  and  debtors  as  a  "monster."  It  hardly  appears,  however, 
that  the  first  outburst  of  hostility  against  it  was  on  account  of  any  contrac- 
tion, or  disciplinary  action  which  it  exercised  ;  but  rather  due  to  a  jealousy 
of  it  as  a  foreign  institution,  present  in  some  of  the  States,  perhaps  against 
their  will;  possessed  of  privileges;  paying  no  taxes,  and  holding  the  atti- 
tude of  a  school-master,  t  In  Kentucky  an  act  was  passed,  February  3, 
1818,  to  tax  each  branch  of  the  Bank  $5,000  per  annum,  commutable  at  50 
cents  on  each  $100  of  capital  in  each  branch,  or  25  cents  on  each  $100  of 
loans  and  discounts,  as  they  might  stand  on  the  loth  of  March  in  each  year. 
This  act  was  considered  entirely  reasonable  in  amount  and  method. 

The  popular  temper  in  those  days  went  through  oscillations  of  mania  for 
banks  and  rage  against  banks.  Within  a  year  or  two,  two  Legislatures 
would  be  elected  which  might  represent  the  extremes  of  these  two  feelings. 
Governor  Slaughter  opened  the  session  of  the  Kentucky  Legislature  of  181 8- 19 


♦  See  page  80. 

t  Senator  White,  of  Tennessee,  in  a  speech  in  1838,  said  that  the  Banl<  of  the  United  States,  after  establishing  its 
branches  in  Kentucliy,  exacted  payment  for  its  loans  when  they  became  due.  "  To  this  the  people  had  not  been  accustomed, 
and,  as  is  always  the  case,  although  the  Bank  had  been  popular  when  making  loans,  it  soon  became  very  unpopular  when 
tiying  to  collect  its  debts." 


ii,i 


a 


110 


A  HISTORY  OF  BANKING. 


i 


with  a  message  in  which  he  expressed  fear  of  banks  and  of  a  moneyed  aris- 
tocracy founded  on  them.  He  proposed  to  the  Legislature  that  they  should 
propose  an  amendment  to  the  federal  Constitution,  providing  that  after  a 
certain  time  no  incorporated  banks  should  exist  in  the  United  States.  Reso- 
lutions were  introduced  in  the  Kentucky  Legislature,  January  4,  1819,  that 
banks  with  private  stockholders  were  "moneyed  monopolies  tending  to  make 
profit  to  those  who  do  not  labor  out  of  the  means  of  those  who  do,  *  *  * 
tending  to  tax  the  many  for  the  benefit  of  the  few,"  and  that  the  federal  and 
State  governments  ought  "to  abolish  all  banks  and  moneyed  monopolies 
and,  if  a  paper  medium  is  necessary,  to  substitute  the  impartial  and  dis- 
interested medium  of  the  credit  of  the  Nation  or  of  the  States."* 

As  the  Bank  had  paid  no  attention  to  the  tax  law  of  the  previous  session, 
another  act  was  passed,  January  28,  1819,  which  showed  a  different  temper. 
A  tax  of  $60,000  per  annum  was  laid  on  the  Branches  or  offices  of  any  bank 
doing  business  in  Kentucky  and  not  incorporated  by  that  State,  to  be  paid 
monthly,  commencing  March  4,  1820.  The  Sergeant  of  the  Court  of  Appeals 
was  authorized  to  break  open  and  enter  the  Bank  and  distrain  for  the  tax. 
If  the  Bank  of  the  United  States  would  promise,  within  six  months,  to  with- 
draw its  branches,  the  tax  would  not  be  collected.  This  law  of  Kentucky 
was  passed  Just  at  the  time  that  the  Supreme  Court  of  the  United  States 
decided  the  case  of  McCuUoch  vs.  iMaryland.f  In  December  following,  the 
case  of  the  Commonwealth  against  Morrison  came  on  before  the  Court  of 
Appeals  of  Kentucky.!  Judge  Rowan  delivered  a  long  opinion  on  the  tax  of 
the  Bank  of  the  United  States.  If  the  States  cannot  tax  any  such  institution 
doing  business  within  their  borders,  they  are  petty  and  insignificant.  Banks 
are  not  necessary  to  collect  the  revenue.  "Their  location  in  a  State  is  as  if 
done  by  a  foreign  nation. "  The  taxing  power  is  concurrent ; — neither  federal 
nor  State  government  should  interfere  each  with  the  other.  If  the  government 
uses  its  funds  for  stock  jobbing  or  traffic  in  a  State,  it  is  liable  to  taxation. 
Although  the  Court  believes  that  the  Bank  is  unconstitutional,  yet  it  must 
bow  to  the  decision  of  the  Supreme  Court  of  the  United  States.  Such  was 
the  decision  of  the  Court,  but  it  is  said  that  Rowan  thought  that  they  ought 
to  stand  out  for  a  further  struggle  in  the  interest  of  State  rights.§ 

The  Bank  found  it  necessary  to  very  much  contract  its  business  in  Ken- 
tucky. Its  circulation  there,  in  18 19,  was  over  $630,000.  It  was  gradually 
reduced  until  in  1825  it  was  only  $170,000;  then  it  began  to  increase  again, 
and  in  1828,  was  $i.j  millions.  This  was  the  ground  of  the  charge  which 
v  -  ■!  ought  against  it  in  the  bank  war,  of  having  discontinued  business 
'AiC.  J  z  ;  sriod  of  seven  or  eight  years.  This  conflict  between  the  Bank  of 
tb-  ..■•,  J  States  and  the  local  banks,  with  all  the  reasons  for  the  same,  are 
:om- !(*">}  set  forth  in  a  letter  by  Crawford,  in  1823.II  The  Bank  agreed  to 
arce  t.  .  trust  for  the  Treasurer  of  the  United  States,  all  notes  of  banks 
selected  by  itself  as  depositories  where  it  had  no  office,  and  of  such  others 


*  ij  NilM,  417. 


t  See  page  lOO. 


X  2  Marshall,  75. 
I  4  Folio  Finance,  262. 


i  Kendall's  Autobiography,  105. 


-  I 


THE  CRISIS  IN  THE  MISSISSIPPI  i^ ALLEY. 


ill 


as  it  might  agree  to  credit.    This  arrangement  could  not  be  maintained  in 

1818,  when  the  crisis  came  on.  The  Bank  could  not  receive  notes  of  banks 
which  would  not  redeem.  The  banks  complained  of  its  demands.  The 
Bank  refrained  from  issuing  its  own  notes  and  refused  to  receive  for  the 
credit  of  the  Treasurer  of  the  United  States  anything  but  specie  or  its  own 
notes.  Thus  the  debtors  for  the  public  lands  became  liable  to  pay  specie 
for  all  their  debt.  Crawford  regarded  this  state  of  things  as  creating  a  poli- 
tical peril  which  the  Executive  was  bound  to  avert,  if  possible,  and  this  is 
his  defense  of  his  interference  to  favor  banks  with  the  use  of  the  public 
money,  that  they  might  liivor  the  debtors  to  the  Treasury  for  public  lands. 

The  Bank  of  England  through  this  period  and  long  afterwards,  received 
country  bank  notes  for  revenue,  but  did  not  become  responsible  to  the 
Exchequer  for  the  amounts  until  the  notes  were  converted  into  coin  or 
Bank  of  England  notes.* 

February  6th,  1819,  the  charter  of  the  Bank  of  Kentucky  was  extended  to 
18411.  No  more  branches  were  to  be  established  except  by  a  vote  of  two- 
thirds  of  the  State  directors  and  two-thirds  of  the  stockholders'  directors, 
with  the  assent  of  the  Legislature.  The  stockholders  were  to  appoint  one 
visitor  and  the  Legislature  another,  to  inspect  and  examine  the  bank.  The 
present  stockholders  may  withdraw  after  December  31,   1821.     After  May, 

1819,  no  bank  was  to  issue  any  note  for  less  than  $1. 

"  In  the  early  part  of  1819,  the  price  of  all  articles  produced  in  the  Western 
States  fell  so  low  as  scarcely  to  defray  the  expense  of  transportation  to  the 
ports  from  whence  they  were  usually  exported  to  foreign  markets.  This 
condition  of  things,  which  had  not  been  anticipated  when  the  debt  for  the 
public  lands  was  contracted,  produced  the  most  serious  distress  at  the 
moment,  and  excited  alarming  apprehensions  for  the  future."! 

•  Quia,  in  i  Raguet's  Register,  35. 

t  Crawford's  Letter  of  February  15,  i8m,  3  Folio  Finance,  718. 


'  A 


I      !y- 


CHAPTER  IX. 

The  Liquidation  on  the  Atlantic  Coast. 


1     < 


-t; 


If* 


ill 

■ 

URING  the  summer  and  fall  of  1819,  on  the  Atlantic  Coast,  the 
good  and  bad  banks  were  being  rapidly  separated  from  each 
other,  the  former  growing  steadily  stronger,  and  the  latter  rap- 
idly falling  or  their  notes  becoming  uncurrent.  In  July,  the 
Committee  on  Banks  of  New  Hampshire  reported  all  the  banks 
solvent,  although  one  was  thought  to  have  made  excessive  issues,  and  the 
New  Hampshire  Bank,  in  which  the  State  owned  $25,000  stock,  had  made 
some  bad  debts.  A  legislative  committee  in  Massachusetts  reported  all  the 
banks  solvent.  From  Connecticut  it  was  reported  that  no  bank  had  failed 
or  suffered  a  run.*  In  the  Middle  States  laws  to  restrain  banking  were 
passed  by  nearly  all  the  States.  In  New  York  there  was  a  penalty  of  ten 
per  cent,  for  non-redemption.  Pennsylvania  passed  an  act,  March  29,  18 19, 
providing  that  any  one  of  "the  forty"  banks  incorporated  in  1814,  which 
did  not  pay  specie  on  and  after  August  ist,  on  demand,  should  forfeit  its  char- 
ter. The  Governor  in  his  next  message  said  that  this  act  had  not  been 
enforced  against  any  one  of  them,t  but  the  Treasurer  of  the  State  gave 
notice,  in  February,  1820,  that  the  charters  of  five  specified  banks  were 
null  and  void.  J  In  Maryland  a  law  was  passed  providing  for  a  scire  facias 
to  annul  the  charter  of  any  non-specie  paying  bank.  Several  of  the  New 
England  and  Middle  States  passed  laws  within  a  year  or  two,  forbidding 
notes  under  $5.  Thus  the  currency  was  steadily  improved  during  1820. 
As  early  as  October  16,  18 19,  the  Bank  of  the  United  States  gave  notice  that 
it  would  receive,  at  any  office,  its  notes  for  $5  issued  at  any  office.  It  had 
saved  itself  and  thrown  the  consequences  of  all  its  folly  and  misdoings  on  its 
customers  (who  were  not  indeed  blameless),  and  on  the  public.  The  loans 
and  discounts  of  the  Bank,  injuly,  1817,  were  $26.2  millions.  They  steadily 
increased  to  $41.4  millions  one  year  later.  Then  they  declined  to  their  mini- 
mum for  the  period,  $28.0  millions,  in  January,  1822.  The  circulation  was 
lowest  in  July,  1820;  $3.5  millions.§ 


'  16  NUes,  jai. 


1 17  NUes,  401. 


i  Ibid.,  447. 


gTreas.  Rep.,  Jan.  15,  1838. 


1   i' 


THE  LIQUIDATION  ON  THE  ATLANTIC  COAST. 


"? 


The  difficulties  which  the  Bank  of  the  United  States  experienced  in  equal- 
izing the  exchanges  became  especially  manifest  at  Savannah  and  at  Cincin- 
nati, At  the  former  city,  the  balances  due  to  the  branch  by  the  local  banks, 
chiefly  on  account  of  the  accumulation  of  their  notes  in  it  by  the  payment  of 
duties,  were  $100,000  or  $200,000,  during  1817,  1818,  and  1819.  Sometimes 
they  were  more  than  $400,000,  and  at  the  beginning  of  1820  they  exceeded 
$500,000.  These  balances  they  at  length  refused  to  pay,  whereupon  the 
Bank  refused  to  accept  their  notes  and  account  for  them  as  cash  to  the  credit 
of  the  United  States.  The  Bank  agreed  to  allow  them  $100,000  as  a  per- 
manent deposit,  the  payment  of  which  should  not  be  demanded;  but  when 
payment  of  the  excess  was  required,  they  refused  it.  The  local  banks, 
defending  themselves,  objected  to  daily  cash  settlements,  which  the  Bank 
had  required.  A  committee  of  the  directors  at  Philadelphia  said;  "The 
practice  of  daily  settlements  prevails,  it  is  believed,  among  four-fifths  in 
number  and  in  amount  of  capital  of  the  banks  of  the  principal  cities  of  the 
United  States."  Other  evidence  does  not  support  this  assertion,  and  if  it 
was  true  at  the  time,  in  the  days  of  penance  after  the  panic,  the  custom  soon 
after  fell  into  disuse.  The  committee  of  directors,  however,  recommended 
to  relax  this  so  far  that  the  settlements  be  weekly.  The  Savannah  branch 
was  also  forbidden  to  issue  its  own  notes  while  the  exchanges  were  adverse. 
The  president  of  that  branch  reported  that  weekly  settlements  would  prob- 
ably be  as  little  palatable  as  daily  ones.  He  thought  that  monthly  ones 
would  be  agreed  to,  but  gave  his  own  opinion  that  there  was  no  need  for 
settlements  more  frequently  than  semi-annually  or  annually.  From  this  dis- 
cussion it  is  very  easy  to  see  that,  if  there  had  been  no  Bank  of  the  United 
States,  the  local  banks  could  have  followed  an  unrestrained  policy  of  inflation, 
but  that  the  drift  of  their  notes  into  the  Bank,  which  was  the  same  as 
to  say  the  Treasury  of  the  United  States,  brought  about  a  demand  upon  them 
which  limited  their  issues.  We  learn  from  the  same  correspondence  that  the 
notes  of  Georgia  and  the  Carolinas  circulated  far  into  the  West  and  North- 
west, were  received  for  lands,  and  were  sent  into  the  eastern  branches  to  be 
collected.  Thus  the  collision  between  the  national  bank  and  the  local  banks 
was  direct  and  violent.  It  was  only  by  means  of  it  that  the  local  currencies 
could  all  be  equalized  by  all  being  brought  to  par.  It  is  clear  that  the  first 
requisite  of  success  in  this  duty  was  that  the  Bank  of  the  United  States 
should  itself  be  as  sound  and  as  correct  in  its  methods  as  any  bank  could 
possibly  be,  and  that  the  thing  which  lamed  it  in  its  efforts  to  regulate  others 
was  the  revelation  by  the  Committee  of  18 19  of  what  its  own  misbehavior 
had  been. 

In  July,  1821,  the  notes  of  the  Planters'  Bank  of  Georgia  were  thrown 
out  by  the  branch  of  the  Bank  of  the  United  States  because  it  had  suffered 
them  to  be  protested.  Out  of  this  another  quarrel  grew.  Cheves  said  that 
"the  avowed  object  of  the  Planters'  Bank  is  to  prevent  the  office  from 
receiving  its  notes,  in  order  that  it  may  be  in  no  shape  called  upon  to  redeem 
8 


I 
I 


|i' 


i 


\k\ 


I 
I 


14 


A  HISTORY  OF  BANKING. 


L'  \ 


f 


them  in  legal  money.  "  The  jimount  which  the  Bank  now  had  locked  up  in 
Savannah  was  over  $400,000.* 

The  Bank  and  the  local  banks  reached  a  concordat  in  January,  1821,  the 
latter  agreeing  to  pay  interest  on  all  over  a  maximum  balance,  but  their 
notes  still  continued  to  accumulate  in  the  Bank.  In  the  following  summer, 
the  Planters'  Bank  broke  the  arrangement,  and  again  entered  into  open  hos- 
tility with  the  Bank.  In  a  letter  to  Crawford,  the  president  says:  "Aided 
by  such  an  immense  capital,  and  having  the  additional  weapon  of  the  federal 
revenue,  it  is  impossible  to  maintain  intercourse  with  such  an  institution." 
"  A  feeling  of  dissatisfaction  or  irritation  against  the  government  never  existed 
in  the  banks  or  in  this  community,  until  this  mammoth  came  here  to  destroy 
our  very  substance."  "You  will  perceive  readily  that  our  main  object  is  to 
prevail  on  the  Bank  of  the  United  States  to  refuse  our  paper  and  to  deal  on 
their  own.  While  they  decline  issuing  their  own  bills,  and  none  compara- 
tively of  the  public  revenue  is  expended  in  this  quarter,  it  is  impossible  for 
the  State  banks  located  in  the  same  place  with  it  to  exist,  "f  To  this  Craw- 
ford replied  that  if  the  local  notes  were  not  received  by  the  Bank,  people  who 
had  duties  to  pay  would  demand  specie  of  the  banks,  with  the  same  result. 
"Experience  has  shown  that  so  long  as  the  notes  of  the  Bank  of  the  United 
States  and  its  oflFices  are  everywhere  received  in  payment  to  the  government, 
they  will  circulate  only  where  the  principal  part  of  the  revenue  is  disbursed." 
He  explained  that  the  drain  of  specie  from  Georgia  to  the  North  and  East 
was  "in  no  degree  ascribable  to  the  Bank.  It  is  the  result  of  the  operations 
of  the  government."  He  tried  not  to  be  drawn  into  the  controversy,  but 
put  the  Planters'  Bank  entirely  in  the  wrong.  J  In  a  later  letter  the  president 
of  that  Bank  regretted  that  the  discretion  of  the  Treasury  could  not  have 
been  "exercised  in  behalf  of  the  community  that  has  suffered  so  much  as 
this  under  the  lash  of  the  United  States  Bank."  "Congress  can  hardly 
consent  to  see  the  southern  States  torn  to  pieces  and  rendered  disaffected 
towards  the  federal  government,  which  would  seem  to  be  the  inevitable 
consequence  of  the  present  measures  of  the  United  States  Bank,  which  it  is 
enabled  to  pursue  only  by  the  means  derived  from  the  collection  of  the 
revenue.  "§ 

During  this  controversy,  the  Georgians  had  made  constant  threats  that 
they  would  invoke  the  interference  of  their  own  Legislature. 

A  Committee  on  Banks  made  a  report  to  the  Senate  of  Georgia,  Novem- 
ber ^o,  1821,11  in  which  they  say  that  Georgia  has  aimed  to  furnish  herself 
with  a  currency  by  her  own  banks,  and  at  the  same  time  to  get  an  invest- 
ment for  her  State  funds.  She  has  been  frustrated  in  this  by  the  intrusion 
of  the  Bank  of  the  United  States  which  long  refused  to  issue  notes.  It  got 
possession  of  the  notes  of  the  State  banks  and  by  demanding  specie  for 
them,  drained  away  specie.  The  Committee  advises  against  any  collision, 
but  recommends  that  no  notes  presented  by  anybody  with  a  demand  for 


*  4  Folio  Flmuice,  9}i. 

i  Ibid.,  1075. 


1 4  Folio  Finance,  ia«9.  X  4  Folio  Finance,  £97. 

I  Scsiion  Laws  of  1821 ,  p.  i}o. 


i;  * 


f- 


■M 


{'k 


THE  LIQUIDATION  ON  THE  ATLANTIC  COAST. 


115 


hat 

m- 
self 
est- 
ion 
got 

for 
ion, 

for 


specie  shall  be  paid  unless  an  oath  is  taken  that  the  notes  do  not  belong  to 
the  Bank  of  the  United  States  and  are  not  presented  in  its  interest. 

December  24,  1821,  it  was  enacted  that  State  bank  notes  presented  by 
the  Bank  of  the  United  States  for  specie  should  not  be  paid  unless  the 
agent  would  take  oath  that  they  were  not  collected  for  this  purpose,  if  an 
officer  of  a  State  bank  suspected  that  a  person  who  demanded  specie  was 
an  agent  of  the  Bank  of  the  United  States,  he  might  demand  of  him  to  take 
an  oath  before  a  magistrate  that  that  Bank  had  no  interest.  If  such  person 
refused  to  take  this  oath,  he  might  be  refused  redemption  of  the  notes. 
Whenever  the  Bank  of  the  United  States  demanded  specie,  it  must  send 
with  the  notes  a  schedule  of  their  numbers,  date,  letter,  amount,  and  page, 
dated  the  same  day.  The  notes  of  the  State  banks  in  the  Bank  of  the  United 
States  should  not  bear  interest  on  account  of  any  refusal  to  redeem  them. 

This  law  was  repealed  December  20,  1824. 

In  April,  1822,  the  branch  at  Savannah  was  taking  no  Georgia  notes 
except  on  special  deposit,  "inasmuch  as  an  act  of  the  Legislature  authorizes 
them  to  refuse  specie  payments  to  the  Bank  of  the  United  States  or  offices 
thereof,  and  interest,  if  sued."* 

In  South  Carolina,  at  the  session  of  1819-20,  "nothing  but  the  great 
exertions  of  some  able  and  distinguished  men  probably  prevented  a  system 
of  State  paper  money  from  being  adopted."  In  the  opinion  of  Cheves,  the 
motive  was  to  get  a  currency  the  redemption  of  which  could  not  be  enforced 
by  the  Bank  of  the  United  States,  f 

A  similar  quarrel  occurred  at  Cincinnati.  In  August,  18 18,  the  Bank 
called  on  the  banks  of  Cincinnati  to  pay  20  per  cent,  of  their  debt  to  it 
monthly,  and  to  pay  interest  on  it.  The  local  banks  replied,  through  a 
committee,  in  a  tone  of  astonishment  and  indignation,  saying  that  they  were 
ready  to  meet  all  demands  in  the  ordinary  course  of  business,  but  "  are  not 
prepared  to  redeem,  at  a  few  months'  notice,  all  the  paper  they  have  issued 
for  years  past."  They  have  paid  to  the  branch  $1.4  millions  in  eighteen 
months,  which  has  forced  them  to  withdraw  almost  all  their  circulation. 
They  are  called  upon  to  pay,  either  in  specie.  United  States  notes,  or  eastern 
funds,  none  of  which  can  be  had.  "We  consider  the  liquidation  of  an 
interest  account  at  the  expiration  of  every  thirty  days  as  a  grievance 
unprecedented.  An  interest  account,  it  is  believed,  is  not  usual  between  banks. 
In  the  western  country  it  certainly  is  not."  To  this  Jones  replied:  "He 
must  be  a  sturdy  debtor  indeed  who  boldly  withholds  both  principal  and 
interest,  and  defends  it  as  a  matter  of  right,  "t 

The  office  at  Cincinnati  was  discontinued  in  September,  1820.  In 
1822  the  debt  to  the  Bank  in  Ohio  and  Kentucky  had  been  reduced  not 
quite  $1  million. 

These  cases  show  why  it  was  that,  during  the  years  of  liquidation,  the 
Bank  of  the  United  States  found  it  impossible  to  maintain  any  circulation  in 


'I 


I 


*  4  Folio  Finance,  96}. 


1 4  Folio  Finance,  9)1 


X  4  Folio  Finance,  8S9. 


ii6 


j4  history  of  banking. 


'V 


'^  ]. 


' 


the  western  and  southern  countries.  Its  notes  were  gathered  up  and  used 
as  a  remittance  to  the  North  and  F-ast.  At  the  same  time  the  local  banks, 
whose  notes  had  been  paid  into  the  Bank  in  the  public  revenue  from  lands, 
were  unable  to  redeem  them.  The  local  banks  thus  became  possessed  of 
the  capital  of  the  Bank  of  the  United  States,  and  the  latter  was  forced  to  pay 
out  their  notes  in  order  to  make  any  use  of  them,  thereby  neglecting  its  own 
circulation. 

The  dividends  of  the  Bank  of  the  United  States  were  as  follows:  1817, 
eight  per  cent.;  1818,  five  and  one-half  per  cent.;  1819,  nothing;  1820, 
nothing;  1821,  four  per  cent. ;  1823,  five  per  cent. ;  182^,  five  per  cent.  In 
the  meantime,  the  United  States  was  paying  five  per  cent,  quarterly  on  its 
stock  notes,  so  that  in  1824  it  was  calculated  that  $500,000  had  been  lost 
by  the  public  Treasury  through  its  shares  in  the  Bank.  The  stock  was 
at  122  1-2.  Niles  thought  that  the  public  shares  should  be  sold.*  The  aver- 
age of  the  dividends  from  1817  to  1831  was  a  little  over  five  per  cent.,  paid 
semi-annually;  so  that  the  public  investment  showed,  until  that  time, 
neither  gain  or  loss.f 

In  a  report  on  the  currency,  February  12,  1820,  Secretary  Crawford  esti- 
mated that  the  circulation  in  1815  was  $1  lo  millions  and  that  it  was  greater 
in  1816.  At  the  end  of  the  year  1819,  he  estimated  it  at  $45  millions. 
Nearly  two-thirds  of  the  circulation  had  been  reduced  to  waste  paper.  The 
Secretary  said :  "As  the  currency  is,  at  least  in  some  parts  of  the  Union, 
depreciated,  it  must  in  those  parts  suflFer  a  further  reduction  before  it  becomes 
sound.  The  nation  must  continue  to  suffer  until  this  is  effected.  After  the 
currency  shall  be  reduced  to  the  amount  which,  when  the  present  quantity 
of  the  precious  metals  is  distributed  among  the  various  nations  of  the  world 
in  proportion  to  their  respective  exchangeable  values,  shall  be  assigned  to 
the  United  States,  when  time  shall  have  regulated  the  price  of  labor  and  of 
commodities,  according  to  that  amount,  and  when  pre-existing  arrange- 
ments shall  have  been  adjusted,  the  sufferings  from  a  depreciated,  decreas- 
ing, and  deficient  currency  will  be  terminated.  Individual  and  public 
prosperity  will  gradually  revive,  and  the  productive  energies  of  the  nation 
resume  their  accustomed  activity." 

It  took  time  for  this  liquidation  and  readjustment  to  be  accomplished. 
Specie  was  Imported  in  the  winter  of  1819-20,  and  in  July  of  the  latter  year 
Niles  said:  "It  is  stated,  and  we  think  with  probability,  that  there  was 
never  more  specie  in  the  United  States  than  at  this  present  time.  "J  It  was 
largely  imported  from  Mexico,  through  New  Orleans,  during  the  next  years. § 

The  international  relations,  however,  had  changed  since  18 16.  The 
European  nations,  England  especially,  were  struggling  in  18 19  to  resume 
specie  payments.  Specie  was  moving  from  country  to  country  in  an 
unprecedented  manner.  Several  of  the  great  nations  were  contracting  loans, 
partly  in  order  to  resume.    The  whole  civilized  world  was  in  the  midst  of 


^  I 


\, 


*36  Niles,  341. 


t  41  N'iles,   1 18. 


i  18  Niles,  565. 


i  34  Niles,  160. 


THE  LIQIUDATION  ON  THE  ATLANTIC  COAST. 


"7 


the  financial  storm  through  which  the  equilibrium  of  peace  was  restored, 
after  the  prolonged  artiliciai  disturbance  of  the  Napoleonic  wars,  i'rices 
were  falling  and  business  was  stagnant  the  whole  world  over.  The  reaction 
therefore  went  on,  as  it  alw  lys'  must  under  such  circumstances,  to  a  point 
below  the  real  point  of  equilibrium.  The  nations  had  to  bid  against  each 
other  for  the  supply  of  the  precious  metals  by  lower  and  lower  prices.  The 
exchanges  were  in  constant  fluctuation  and  produced  strange  and  complicated 
phenomena  which  lay  outside  the  experience  of  people  then  living.  Since 
1797,  Ungland  had  had  inconvertible  bank  paper  which  had  been  depreciated 
from  one  per  cent,  to  35  per  cent. — for  the  greater  part  of  the  time,  about 
eight  per  cent,  or  ten  per  c<;nt.  Since  1814  there  had  been  a  redundant 
and  depreciated  currency  here.  Thus  there  had  been  various  combin- 
ations working  on  the  sterling  exchange  on  both  sides;  sometimes  both 
currencies  had  been  good;  sometimes  both  bad;  and  sometimes  the  Fnglish 
had  been  good  and  the  American  bad,  and  vice  versa.  At  the  ratio  of  is  1-4 
to  I,  the  par  of  exchange  would  be  $4.64  for  jQx  sterling,  and  as  $4.44  4-9 
was  traditionally  taken  as  100,  the  par,  under  the  fashion  of  quoting,  was 
104  \-2.  Americans  had  been  accustomed  to  see  the  exchange  quoted 
between  90  and  100,  which  figures  were  especially  calculated  to  produce 
confusion  and  error,  in  1821  it  averaged  above  108;  in  1822,  112.  In  1822, 
it  reached  114;  it  had  been  seen  as  low  as  80.*  There  was  also  a  change 
going  on  in  the  relative  value  of  gold  and  silver,  on  account  of  which,  under 
the  false  rating  of  the  American  coinage  at  the  time,  gold  was  exported  from 
'his  country.  It  was  said  that,  between  1820  and  1822,  the  last  gold  coin 
was  carried  away.  The  ratio  of  the  metals  was  for  a  time  above  16  to  i. 
$10.60  or  $10.70  in  silver  were  given  here  for  eagles  to  be  exported  to 
England  in  order  to  draw  exchange  against  them.  The  consequence  was  a 
check  to  imports,  an  encouragement  to  exports,  and  a  discouragement  to 
the  investment  of  capital  here  if  the  profits  were  to  be  paid  here.  The  Bank 
of  the  United  States  found  it  necessary  to  recede  from  an  offer  it  had  made 
to  pay  dividends  in  London,  on  account  of  the  loss  on  exchange.  The 
amount  of  American  stocks  held  in  England  at  this  time  was  estimated  at 
$30  millions,  f 

During  the  years  of  liquidation,  the  rate  of  interest  was  very  low,  and 
first  rate  securities  were  so  high  as  to  net  only  four  or  five  per  cent.  In  1821, 
Spanish  dollars  were  at  par  of  the  currency  in  all  the  chief  cities  of  the 
coast,  except  Boston,  where  they  were  at  one-quarter  or  one-half  of  one  per 
cent,  premium.!  'n  ^^Y-  ^^22,  there  was  a  flurry  in  the  money  market  of 
the  chief  cities.  United  States  Bank  stock  fell  at  New  York  from  1 10  to  98. 
The  banks  there  and  at  Philadelphia  and  Baltimore  stopped  discounting, 
"and  it  appeared  as  if  some  frightful  mischief  was  rapidly  approaching." 
A  great  stringency  in  the  money  market  of  Boston,  and  numerous  failures, 
was^the  report  from  that  quarter.     In  June  and  July,  there  were  said  to  have 


M^;i 


*  u  NUn,  132. 


t  20  Niles,  J73. 


t  n  NilM.  i8. 


4 


i«  i 


•1. 


Ii8 


A  HISTORY  OF  BANKING. 


been  more  than  eighty  failures.  The  best  explanation  which  was  offered  of 
these  incidents  was  that  they  were  due  to  weakness  left  behind  by  the  crisis 
of  1 8 19,  in  which  Boston  was  not  spared,  although  it  had  been  outside  of 
the  earlier  troubles  between  1814  and  181 7.* 


•  la  NilM,  161,  245,  J5j;  »)  NUa,  358. 


f 


CHAPTER    X. 


Liquidation  in  the  Mississippi  Valley. — Relief  Measures. 

IT  might  naturally  be  supposed  that  frontier  society,  consisting  of 
a  very  sparse  population  with  few  and  poor  means  of  commu- 
nication, would  not  easily  be  united  on  any  opinion  or  policy. 
It  is  very  true  that  such  society  had  a  very  low  social  organiza- 
tion, and  that  the  civil  authority  was  powerless  to  enforce  the 
most  salutary  measures  which  were  irksome  and  unpopular,  but  the  history  of 
all  our  societies  in  their  early  stages  has  shown  that  they  are  far  more  sus- 
ceptible to  gusts  of  passion  and  storms  of  opinion  than  older  societies.  One 
chief  explanation  appears  to  be  that  life  was  so  dull  and  tame  that  any  excite- 
ment, and  especially  social  contact,  was  eagerly  sought.  Men  went  twenty 
miles  to  the  county  town  to  see  the  Court  come  in.  A  camp  meeting,  a 
barbecue,  a  convention,  sufficed  to  draw  together  all  the  people  of  a  county. 
On  these  occasions  passion,  prejudice,  argument,  etc.,  inflamed  the  people, 
and  the  mysterious  sympathy  of  a  crowd  seemed  to  act  more  intensely  on 
people  who  were  unused  to  it.  The  orators  curried  popularity  and  applause. 
The  crowd  was  very  capricious.  It  was  not  easy  to  tell  in  advance  what 
would  "take"  and  what  would  fall  dead.*  The  ambitious  men  sought 
only  to  perceive  the  currents  of  popular  feeling.  The  consequence  was  that 
they  always  exaggerated  the  tendencies  which  had  once  started.  They 
tried  to  distinguish  themselves  by  their  zeal  and  excess  in  the  popular  cause. 
Therefore  everything  tended  to  run  the  current  of  the  moment  to  excess  and 
abuse. 

If  these  facts  are  noted  they  go  far  to  explain  the  extravagances  of  the 
relief  system,  of  paper  money  banking,  of  internal  improvements,  etc. 

There  is  in  every  commercial  community  a  general  indebtedness.  It  is 
constantly  being  dissolved  and  renewed.  It  is  quite  a  different  thing  when 
a  simple  agricultural  community  consists  of  householders,  nearly  every  one 


*  The  Indignation  over  the  Wiggins'  loan  of  |8)  i ,  by  which  the  paper  of  the  Bank  of  the  State  of  Illinois  was  redeemed, 
was  unsurpassed  in  Illinois,  except  when  the  Legislature  passed  a  law  prohibiting  small  bulls  from  running  at  large.  This 
was  to  improve  the  breed.    The  people  were  furious  and  "  took  sides  with  the  little  bulls."    (Ford,  107.) 


I20 


A  HISTORY  OF  BANKING. 


m 


of  whom  is  under  a  load  of  long  debt,  by  which  he  has  pledged  his  future 
production  and  savings;  even  if  the  load  is  not,  under  favorable  circum- 
stances, excessive.  Taking  into  account  the  vicissitudes  of  life: — natural 
calamities,  disease,  personal  and  family  misfortune,  there  will  be  a  percentage 
of  such  debtors  who  will  fail  to  carry  out  successfully  the  enterprises  for 
which  they  incurred  debt.  This  is  so  even  in  a  new  country,  where  the 
drafts  on  the  future  are  in  fact  honored  to  a  marvellous  extent,  even  when 
they  were  rashly  and  unwarrantably  drawn.  In  the  case,  however,  in  v/hich 
the  plans  are  excessive,  extravagant,  and  ill-devised,  and  where  the  capital 
is  carelessly  and  recklessly  managed,  the  only  consequence  must  be  a  wide 
sweep  of  financial  disaster.  Then,  if  the  bankrupts  are  voters,  and  the  insti- 
tutions of  civil  government  are  those  of  a  democratic  republic,  a  general 
indebtedness  comes  to  appear  like  the  worst  of  political  and  social  diseases* 
This  disease  has  ravaged  the  United  Stetes  again  and  again  within  two  hun- 
dred years.  It  is  no  doubt  attendant  on  a  spirit  of  feverish  enterprise, 
indomitable  industry,  and  a  sanguine  temperament.  It  has  impressed  on 
our  national  life  a  character  of  endless  vicissitude,  and  alternations  of  heats  of 
prosperity  and  chills  of  disaster.  How  much  more  capital  have  we,  how 
much  more  secure  are  fortunes,  how  much  more  really  efficient  is  the  pro- 
ductive power  of  the  nation,  than  it  vould  have  been  on  a  system  of  cash 
and  patient  accumulation  with  realizations  ? 

"Money  is  scarce"  when  a  great  many  people  have  given  money  for 
goods  in  the  expectation  of  giving  the  goods  for  money  again  at  a  gain. 
Then  the  time  comes  when  the  people  who  have  money  will  not  part  with 
it  for  goods  at  the  prices  ruling  because  they  think  them  too  high.  They 
withdraw  the  money  from  circulation.  This  is  the  "contraction"  which 
tells.  There  arises  a  complaint  of  "sluggish  circulation  of  money,"  of 
"over-production,"  of  the  "cruelty  of  competition,"  and  the  "tyranny  of 
the  conjuncture."  The  attempt  always  suggests  itself  to  remedy  the  trouble 
by  "issuing  money  enough  for  the  wants  of  trade."  If  this  remedy  could  be 
made  operative  it  would  force  the  holders  of  money  to  part  with  it  for  goods 
at  rates  satisfactory  to  the  holders  of  the  latter.  This  device  has  never  been 
made  to  wrrk.  To  see  the  reason  why,  it  suffices  to  ask  one's  self  whether 
one  would  allow  it  to  be  put  in  effect  against  one's  self.  "In  vain  the  net 
is  spread  in  the  sight  of  any  bird."  The  people  who  have  the  advantage  of 
the  market  must  be  slaves,  imbeciles,  or  cowards  to  give  it  up  and  exchange 
places  with  those  who  are  on  the  other  side.  As  to  outstanding  contracts 
the  case  is  different.  There  the  "sovereign"  steps  in.  Ethics  and  meta- 
physics are  invoked.  We  hear  of  "distributive  justice,"  and  the  legislator 
and  judge  go  to  work  to  administer  it.  Stay  laws  and  legal  tender  laws  are 
their  chief  engines.  The  only  effect  which  results  is  a  dissolution  of  the 
bonds  of  society  and  a  reign  of  injustice,  with  a  suspension  of  all  the  recu- 
perative operations  which  would  otherwise  automatically  begin. 

Kentucky. — The  Bubble  having  burst,   the  time  had  now  come  for 
"relief."    Relief  meant  that  some  were  left  long  of  goods  on  a  market  which 


1  f 


\    •'  h 


LIQLUDA  TION  IN  THE  M/SSISS/PPI  yALLEY. 


121 


had  dropped.     They  wanted  something  to  raise  prices  again  long  enough  for 
them  to  unload  on  somebody  else. 

The  history  of  the  relief  laws  of  the  western  States  runs  back  to  the  first 
settlement  of  Virginia.  Through  the  eighteenth  r  entury  the  laws  for  execu- 
tion on  judgments  oscillated  between  security  to  the  creditor  and  leniency  to 
the  debtor.  Whenever  ' '  times  were  hard, "  the  collection  laws  were  relaxed ; 
when  the  exigency  passed,  they  were  restored.  The  preambles  of  the  laws 
throw  an  interesting  light  on  the  experience  of  these  two  lines  of  policy.  It 
came  to  be  the  standard  of  severity,  amongst  those  who  had  grown  up 
under  the  Virginia  tradition,  that  a  debtor  whose  personal  property  was 
taken  in  execution  might  replevin  the  goods  for  three  months  on  giving 
bond  with  surety  for  the  debt  and  costs.  In  Kentucky,  land  was  made  liable 
to  execution  although  it  had  not  been  so  in  Virginia.  When  land  was  taken, 
an  old  Virginia  institution  was  applied  in  a  modified  way.  Appraisers  were 
appointed  and  the  land  was  valued.  Originally  this  was  a  fair  device  where 
there  was  no  proper  market  to  make  a  price.  It  was  adopted  in  all  the 
States  and  Territories  of  the  Mississippi  Valley,  except  Louisiana  and  Michigan. 
In  times  of  general  indebtedness  it  became  a  means  for  the  debtors  to  band 
together  against  the  creditors.  The  laws  provided,  with  various  minor 
differences,  that  the  land  or  property  should  not  be  sold  unless  it  would 
bring  :.t  auction  one-half  or  two-thirds  or  other  fraction  of  the  appraisal  made 
by  neighbors  who  were  all  likewise  debtors.  If  it  did  not,  it  was  restored 
to  the  debtor  for  a  year  or  other  period.  The  term  of  replevin  was  also 
sometimes  exttn<ied.  Later,  this  was  connected  with  a  provision  that  the 
debtor  should  have  a  replevin  for  a  year  or  other  set  time  unless  the  creditor 
would  endorse  on  the  writ  that  the  officer  might  accept  in  payment  some 
specified  kind  of  currency ;  being  always  a  depreciated  kind.  These  laws 
always  provided  that,  if  the  debtor  did  not  avail  himself  of  his  relief,  the 
property  should  be  sold  on  a  credit  for  a  term  which  corresponded  to  the 
'delay  which  he  might  have  had  under  the  law;  the  buyer  to  give  a  bond  to 
pay  at  the  term. 

The  collection  laws  of  Kentucky  were  brought  back,  in  the  first  years  of 
the  century,  to  the  old  standard  above  described,  but  at  the  beginning  of  the 
inflation  period  they  began  to  be  relaxed  again.  The  laws  staying  execu- 
tion, unless  the  creditor  endorsed  the  writ,  were  extended  from  year  to  year; 
but  in  1818  the  required  endorsement  was  only  for  notes  of  the  Bank  of  the 
United  States  or  of  the  Bank  of  Kentucky. 

February  6,  1819,  the  endorsement  law  was  further  extended  till  February 
5,  1820,  but  the  endorsement  was  now  to  provide  for  notes  of  the  Bank  of 
Kentucky  only.  This  Bank  of  Kentucky,  whose  notes  the  creditor  must 
agree  to  take,  had  suspended  in  the  middle  of  November,  1818,  but  was 
compelled  by  public  opinion  to  resume  within  a  week.  It  was,  therefore, 
limping  along  during  the  year  1819. 

Committees  of  the  Bank  of  Kentucky,  the  Farmers'  and  Mechanics' 
Bank  of  Lexington,  the  Commercial  Bank  of  Louisville,  and  the  Louisville 


y^m 


122 


A  HISTORY  OF  BANKING. 


branch  of  the  Bank  of  the  United  States  held  a  meeting  at  Lexington,  May 
22,  1819,  to  consider  the  distressed  state  of  the  country  and  devise  a  plan  of 
relief;  but  their  real  purpose  was  to  "counteract  the  objects  of  those  who 
are  disposed  to  suspend  specie  payments  and  establish  replevin  laws."* 

In  June  of  that  year,  the  gross  amount  of  debts  due  to  the  banks  in  Ken- 
tucky was  estimated  at  $10  millions;  $5  millions  to  the  Bank  of  Kentucky, 
%}  millions  to  the  branches  of  the  Bank  of  the  United  States,  and  $2  millions 
to  the  independent  banks.  County  meetings  were  held  to  get  a  suspension 
of  specie  payments,  more  paper  money,  and  an  extra  session  of  the  Legisla- 
ture to  pass  relief  laws. 

At  a  county  convention  in  Jefferson  County  the  vote  was  three  to  one 
against  approving  a  suspension  of  specie  payments  by  the  Bank  of  Kentucky. 

In  August,  1819,  the  independent  banks  refused  to  do  anything  but 
exchange  little  notes  for  big  ones  and  vice  versa.  They  nearly  all  failed 
before  the  end  of  the  year. 

During  the  year  the  Bank  of  Kentucky  became  heavily  indebted  to  the 
Bank  of  the  United  States  on  account  of  the  great  advances  which  the  former 
made  to  the  independent  banks.  In  November,  the  latter  bank  ordered  the 
debt  to  be  collected.  The  Bank  of  Kentucky  suspended  and  compromised. 
Its  notes  were  at  fifteen  per  cent,  discount.  May  4th,  1820,  the  stockholders 
of  the  Bank  of  Kentucky  voted  to  suspend  specie  payment.  This  suspension 
became  permanent  and  the  bank  ceased  to  exist.  "What  did  we  tell  the 
people  of  Kentucky  when  they  littered  their  banks  and  were  so  anxious  to 
introduce  the  offices  of  the  Bank  of  the  United  States  ?"t 

The  Legislature  of  1819-20  showed  itself  to  be  a  relief  Legislature. 
December  16,  18 19,  a  law  was  passed  over  the  Governor's  veto  to  suspend 
for  sixty  days  sales  on  execution,  whether  on  judgment  or  on  bonds. 
January  10,  1820,  the  law  of  ten  per  cent,  damages  on  foreign  bills  of 
exchange  was  repealed ;  a  blow  at  the  Bank  of  the  United  States.  February 
loth  the  independent  bank  law  was  repealed.  The  act  has  a  very  long 
preamble;  it  states  that  all  men  are  equal;  that  there  is  no  monopoly  in  the 
social  compact;  that  all  power  is  inherent  in  the  people.  These  propositions 
are  to  lead  the  way  up  to  the  next  one  which  is,  that  all  laws  granting 
privileges  to  the  few  are  tyrannical  and  therefore  repealable  by  the  supreme 
authority.  To  say  that  charters  are  irrepealable  is  to  say  that  abuse  must  be 
perpetual.  All  laws  wliich  harm  the  people  are  against  the  social  compact, 
and  "are  subject  on  first  principles  to  the  condition  of  being  repealed."  A 
bank  charter  gives  privileges  to  the  few.  "To  the  end,  therefore,  that  the 
good  people  of  this  State  be  delivered  in  future  from  the  baneful  effect  of  the 
power  and  privileges  granted  by  the  law  establishing  independent  banks  in 
this  commonwealth,  which  have  been  exercised  in  many  cases  in  the  pleni- 
tude of  tyranny,  oppression,  and  abuse,  to  the  great  injury  of  the  good 
people  of  this  State,"  that  act  is  repealed  from  May  ist. 


*  4  FoUo  Finance,  88). 


t  leNiles,  261. 


LIQUIDATION  IN  THE  MISSISSIPPI  GALLEY. 


123 


The  forty  banks  which  were  overturned  with  these  solemn  and  dogmatic 
enunciations  had  been  founded,  not  by  capitalists  and  monopolists,  but  by  a 
beneficent  Legislature,  pursuing  a  policy  of  prosperity  on  behalf  of  "poor 
men." 

It  is  plain  that  one  of  the  chief  reasons  for  the  popular  antipathy  to  banks 
was  the  notion  that  they  made  the  rich  richer  and  the  poor  poorer.  This 
was  the  meaning  of  the  endless  declamation  about  aristocracy  and  equality 
in  connection  with  banks.  That  banks  of  the  kind  which  then  existed  in 
such  immense  numbers,  organized  by  insolvents,  destitute  of  capital,  engaged 
in  paper  money  mongering,  had  this  effect  is  beyond  question,  except  that, 
in  the  end,  they  almost  invariably  ruined  also  those  who  had  at  first  won  by 
them ;  being  in  this  like  all  gambling  devices,  with  which  in  fact  they  ought 
to  be  classed.*  The  popular  feeling  did  not,  however,  attach  to  this 
view  of  them.  It  was  because  they  loaned  only  to  the  "rich"  that 
they  were  alleged  to  have  this  effect,  and  the  popular  demand  was  for 
real  democratic  banks  which  would  act ' '  equally. "  Equality  before  the  banks, 
however,  could  only  mean  that  all  men  ought  to  have  equal  credit.  When 
the  doctrine  of  equality  comes  to  be  applied  to  commercial  credit  it  receives 
its  final  and  most  pitiless  refutation.  The  great  Banks  of  the  States  were 
built  upon  this  notion,  and  they  made  an  experiment  of  it  which  was  ample, 
unreserved,  and  conclusive.  The  effect  of  giving  equal  credit  to  all,  at  least 
who  were  freeholders,  was  to  ruin  everybody  and  at  last  the  banks  also. 

February  11,  1820,  another  relief  law  was  passed.  The  creditor  might 
endorse  that  notes  of  the  Bank  of  Kentucky  would  be  received.  In  that 
case  the  debtor  had  a  replevin  of  one  year,  or  the  property  was  sold  at  one 
year's  credit  for  the  bond  of  the  purchaser,  and  on  such  bonds  there  was  no 
replevin.  If  the  creditor  made  no  endorsement,  the  replevin  was  for  two 
years.  After  judgment  and  before  execution,  the  defendant  might  enter 
into  recognizances  with  one  or  more  good  sureties  to  pay  in  one  year  with 
interest.  If  he  did  so,  all  proceedings  were  stayed  for  one  year;  then  there 
was  summary  judgment,  as  on  a  replevin  bond ;  but  if  there  was  no  endorse- 
ment that  Bank  of  Kentucky  notes  would  be  received,  the  recognizances 
ran  for  two  years,  not  one.  Where  no  recognizances  were  entered  into, 
there  was  to  be  no  execution  until  ten  days  after  the  rising  of  the  Court. 
This  act  was  to  be  enforced  until  March  i,  1821. 

It  is  evident  that  in  all  these  stay  laws  the  effort  was  to  get  a  postpone- 
ment, such  as  was  employed  in  the  earliest  development  of  bankruptcy 
proceedings.  What  is  the  sense  of  such  an  act  of  the  sovereign  power?  It 
can  only  be  that  a  solvent  person,  disappointed  of  his  receipts,  is  momentarily 
unable  to  pay,  but  has  bills  receivable  in  excess  of  his  bills  payable ;  so  that  in 
a  short  time  he  can  pay.  To  force  him  to  liquidate  on  the  spot  would 
sacrifice  his  assets.     Another  case  where  such  an  act  would  be  justifiable 

*  "  Most  of  the  errors  in  the  business  of  the  bank,"  said  the  president  of  the  Banic  of  the  State  of  Indiana,  in  1841, 
"have  visited  with  retributive  Justice  all  the  parties  concerned.  The  Urge  loans,  the  long  loans,  and  all  special  favors  to 
directors  and  stoclcholders,  have  been  not  less  injurious  to  the  borrowers  than  to  the  bank." 


m\ 


1 


: 


I  ■ 


7? 


■I 


( 

:  !i 


( 

i 


' 


\l 


124 


A  HISTORY  OF  BANKING. 


in  a  less  degree  would  be  where  it  is  assumed  that  the  debtor  can  and 
will  win  a  surplus  out  of  his  business  in  another  period  of  production. 
In  this  case,  a  delay  would  involve  risk  on  two  points, — his  success  in 
production,  and  his  persistent  frugality  to  save  what  he  produces  and 
devote  it  to  the  payment  of  his  debts.  In  the  stay  laws  now  before  us, 
the  pretense  was  that  they  were  justified  under  the  second  head ;  and  it  is 
very  possible  that  there  may  have  been  individuals  who  fitted  the  theory, 
and  who  successfully  emancipated  themselves  from  debt  under  the  system ; 
but  the  debtors,  as  a  class,  were  persons  who  had  bought  for  a  rise,  to  whom 
a  delay  could  be  of  no  use  unless  the  inflated  prices  should  return. 

February  14th,  it  was  enacted  that  no  damages  or  interest  on  notes  due 
to  the  Bank  of  the  United  States,  or  on  any  debts  to  it,  should  be  awarded 
by  any  Court  in  excess  of  one  per  cent,  per  annum.  For  the  future,  any 
greater  rate  shouir'  he  uvi-ious  and  void.  This  act  was  to  come  into  force 
March  15th,  but  if  "^  K  uld  pay  $15,000  to  the  Auditor  before  April  ist, 

the  act  was  no  longer  t(   1  ..;e.     On  the  same  day,  an  act  was  passed  to 

enable  the  independent  batiKS  to  collect  debts  due  to  them  in  liquidation. 
Those  which  appointe  '  commissioners  in  liquidation  were  not  to  be  liable  to 
suit  for  a  year. 

The  forty  banks  had  been  ioundei.  1  l\  period  of  inflation,  as  a  means 
of  developing  industry  and  as  a  policy  of  prosperity.  They  had  all  been 
smashed  in  a  reaction  of  legislative  petulance.  Next  a  big  paper  money  bank 
was  founded  as  another  step  in  the  system  of  relief  to  the  debtors  whom  the 
prosperity  policy  had  created. 

November  29,  1820,  the  Bank  of  the  Commonwealth  of  Kentucky  was 
incorporated.  It  had  no  stockholders.  The  officers  were  elected  annually 
by  the  Legislature.  Their  salaries  were  paid  by  the  State,  and  they  were 
incorporated.  No  one  was  to  have  a  loan  of  more  than  $1,000,  except  the 
directors,  who  might  have  $2,000.  It  was  to  issue  $2  millions  in  notes, 
which  were  to  be  apportioned  between  the  counties  in  proportion  to  the 
taxable  property  in  each,  in  1820,  and  were  granted  in  loans  on  mortgage 
securities.  Loans  were  to  be  made  in  1820  only  to  those  who  needed  them, 
"for  the  purpose  of  paying  his,  her,  or  their  just  debts;  "  or  to  purchase  the 
products  of  the  country  for  exportation.  Borrowers  during  1821  were  to 
take  oath  as  to  the  purpose  for  which  they  wanted  the  loan.  Here  then  was 
a  novelty  in  banking,  an  institution  which  sought  as  borrowers,  not  solvent 
persons  of  high  credit,  but  embarrassed  and  perhaps  insolvent  debtors. 
When  complete,  the  bank  had  twelve  branches;  its  capital  was  to  consist  of 
all  money  thereafter  paid  in  for  land  warrants,  or  land  west  of  the  Tennessee 
river  [this  was  a  contingent  revenue,  which,  inasmuch  as  the  land  specula- 
tion had  passed  by,  proved  very  small]  ;  the  produce  of  the  stock  owned  by 
the  State  in  the  Bank  of  Kentucky,  after  that  bank  should  be  wound  up  [the 
compulsion  to  take  the  notes  of  the  independent  banks  had  ruined  this  bank, 
and  destroyed  the  value  of  its  stock] ;  the  unexpended  balances  in  the 
Treasury  at  the  end  of  the  year  [during  the  life  of  this  bank  there  were  none]. 


LIQUIDATION  IN  THE  MISSISSIPPI  GALLEY. 


125 


The  profits  of  the  bank  were  to  go  to  the  State.  The  notes  were  legal  ten- 
der to  and  from  the  State.  The  Legislature  appropriated  $7,000  to  buy 
books,  paper,  and  plates  for  printing  the  notes.  This  is  all  the  real  capital 
the  bank  ever  had.  Stripped  of  all  pretense,  therefore,  it  was  the  State 
Treasury  put  into  the  hands  of  a  commission,  elected  by  the  Legislature. 
This  commission  was  said  to  be  "incorporated,"  but  they  held  no  assets, 
and  some  acts  of  legislation  look  as  if  it  required  a  vote  of  the  Legislature  to 
pay  judgments  obtained  against  them.  It  was  asserted  that  the  notes  of  the 
bank  got  into  the  hands  of  speculators,  who  held  them  in  order  to  buy 
property  when  the  crash  should  come.  This  was  expected  when  the  stay 
laws  would  expire.* 

In  the  Bank  of  the  Commonwealth  of  Kentucky  vs.  Mayes,  in  the  Circuit 
Court  of  Mercer  County,  Kentucky,  in  1834,  the  Court  said  :  "This  bank  is 
owned  and  governed  by  the  State ;  it  is  established  in  the  name  and  on 
behalf  of  the  State;  the  State  pays  and  defrays  its  entire  expenses;  all  indi- 
viduals are  indicted  from  participating  in  it ;  its  paper  is  circulated  as  money ; 
it  is  receivable  and  redeemable  by  the  State,  and  derives  its  circulation  and 
negotiability  from  the  credit  of  the  State.  If  its  notes  are  not  bills  of  credit 
within  the  meaning  of  the  Constitution,  it  will  be  difficult  to  characterize  a 
bill  of  credit."  From  this  decision  we  also  learn  that  the  lowest  denomina- 
tion of  the  notes  of  the  bank  was  twelve  and  a-half  cents. 

This  bank  was  a  mere  paper  money  machine.  If  by  a  "bank"  we 
understand  an  institution  having  some  permanency,  and  intended  to  continue 
an  action  and  reaction  through  some  prolonged  period,  for  the  satisfaction  of 
constant  or  recurring  financial  necessities,  this  institution  would  not  properly 
be  called  a  bank,  nor  yet  even  a  loan  office.  The  idea  and  intention  were  to 
inflate  the  currency  and  raise  prices  until  the  indebted  persons  could  discharge 
their  debts.  Then  the  issues  were  to  be  recalled  and  burned,  and  the  pur- 
pose would  be  accomplished.  It  was  never  proposed  to  make  these  issues 
legal  tender,  because  that  was  understood  to  bi'  '  opeless  under  the  federal 
Constitution,  but  the  stay  laws  were  to  put  the  coercion  on  the  creditor 
which  was  necessary  to  make  the  system  work.  Gouge  quoted  from 
somebody  else  a  description  of  a  similar  period  when  "creditors  were  seen 
running  away  from  their  debtors  and  debtors  pursuing  them  in  triumph 
and  paying  them  without  mercy." 

A  supplementary  act  was  passed,  December  22,  1820,  by  which  the  issue 
of  the  Bank  of  the  Commonwealth  was  extended  to  $3  millions  and  the  limit 
of  single  loans  to  $2,000.  Property  mortgaged  to  it  and  sold  under  foreclosure 
might  be  redeemed  in  two  years,  at  ten  per  cent,  advance;  notes  under  $1 
might  be  issued ;  special  officers  were  appointed  to  sign  them.  Debts  to 
this  bank  were  made  preferred  debts,  to  be  paid  first,  by  executors  and 
administrators.    This  provision  was  held  valid  and  enforced  in  a  case  in  1829.! 

In  connection  with  the  establishment  of  the  Bank  of  the  Commonwealth 


i:( 


m 


*  20  Niles,  141. 


t  a  J.  J.  Marshall,  79. 


126 


A  HISTORY  OF  BANKING. 


: 


of  Kentucky,  the  stay  laws  were  advanced  still  another  stage.  If  the  creditor 
endorsed  the  writ  that  notes  of  the  Bank  of  Kentucky  or  of  the  Bank  of  the 
Commonwealth  might  be  received,  the  replevin  was  three  months;  if  there 
was  no  endorsement,  it  was  two  years.  This  act  was  not  to  apply  to 
executions  on  replevin  bonds,  but  it  was  to  apply  to  executions  which  were 
in  the  hands  of  the  Sheriff  when  it  was  passed.  On  an  original  judgment, 
if  the  debtor  did  not  avail  himself  of  the  replevin,  a  sale  was  made  at  two 
years'  credit,  the  bond  of  the  buyer  being  taken.  In  an  execution  on  a 
replevin  bond,  if  the  above  mentioned  notes  were  not  endorsed,  the  replevin 
was  for  one  year,  or  there  was  a  sale  on  one  year's  credit.  Recognizances 
were  to  be  employed  as  before.  This  act  was  to  be  enforced  from  March  i, 
1 82 1,  when  the  existing  law  would  expire. 

December  26th,  the  charter  of  the  Bank  of  Kentucky  was  extended  to 
1829,  with  some  new  limitations.  The  stock  of  the  State  was  to  be  paid 
over  to  the  Bank  of  the  Commonwealth  in  three  annual  installments,  begin- 
ning December  31,  1824.  At  the  next  session,  all  laws  by  which  the  State 
was  to  buy  or  pay  for  stock  in  the  Bank  of  Kentucky  were  repealed. 
Imprisonment  for  debt  was  abolished,  and  equitable  interests  were  made 
liable  to  execution. 

The  Bank  of  the  United  States  applied  to  the  Federal  Court  at  Lexington, 
Kentucky,  in  1822,  to  instruct  the  clerk  to  issue  on  application  the  writ  of 
ca.  sa.,  the  law  of  the  State  abolishing  the  writ  notwithstanding.* 

The  "Union"  of  Washington,  Kentucky,!  said  in  March,  1822,  that  the 
circulating  medium  seemed  about  to  cease  to  circulate.  In  the  previous 
winter  it  had  been  understood  that  the  Bank  of  the  Commonwealth  was  not 
to  put  out  any  more  paper,  and  that  its  issues  would  be  regularly  with- 
drawn, on  the  theory  that  its  only  intention  was  to  secure  for  the  debtors  a 
delay  of  a  year  or  two  that  they  might  be  able  to  save  the  property  which  they 
had  pledged.  This  expectation  had  caused  the  exchange  to  rise,  although 
returns  on  the  exports  had  not  begun  to  come  in.  The  "relief"  had  been 
given  to  all  who  were  solvent.  The  Legislature,  however,  increased  the  issue. 
Those  who  had  property  would  no  longer  sell  it  for  the  notes.  If  the  notes 
were  not  restored  to  value,  there  would  be  no  currency  at  all. 

This  complaint  lasted  through  the  year.  In  October  the  ' '  Louisville  Public 
Advertiser"  argued  that  there  was  less  money,  in  value,  in  circulation  than 
ever  before;  as  follows:  "When  the  paper  of  the  old  Bank  of  Kentucky  was 
nearly  as  good  as  specie,  it  had  bills  in  circulation  to  the  amount  of  two 
million  and  a-half,  which  was  barely  sufficient  for  the  purposes  of  trade,  and 
this  bank  now  has  in  its  vault  as  large  an  amount  in  the  bills  of  the  Bank  of 
the  Commonwealth  as  those  of  its  own  in  circulation.  The  whole  issue  of 
the  new  bank  amounts  to  $2.3  millions;  but  as,  in  the  present  rate  of 
exchange  and  price  of  commodities,  this  amount  only  does  the  business  of 
$1, 130,000,  the  real  circulating  medium  has  been  reduced  nearly  one-half.  "J 


•  aa  Kiks,  191. 


t  Qtiotcd  21  Nilcs,  1 16. 


t  a)  NUes,  ifia. 


a 


LIQUIDATION  IN  THE  MISSISSIPPI  l^ ALLEY. 


127 


In  1822  the  Legislature  used  its  power  in  the  election  of  State  directors  of 
the  old  Bank  of  Kentucky  to  put  in  "relief"  men  who  would  make  that  bank 
accept  Commonwealth  notes.  The  effect  was  that  the  stock  of  the  old  bank 
at  once  fell  to  fifty  and  this  was  its  death  blow.*  In  October,  1822,  a  specie 
dollar  was  worth  $2.05  in  Commonwealth  notes.f 

The  power  of  the  Bank  of  Kentucky  to  discount  notes  and  bills  was 
repealed  December  5,  1822,  and  it  was  ordered  to  wind  up.  Its  notes  were 
to  be  burned.  The  Bank  of  Kentucky  and  the  Bank  of  the  Commonwealth 
were  to  exchange  notes  with  each  other.  The  Auditor  was  to  inform  the 
president  of  the  Bank  of  the  Commonwealth  of  the  amount  of  revenue  in 
his  hands  from  the  lands,  the  sales  of  which  had  been  appropriated  to  that 
bank;  notes  of  the  bank  were  to  be  burned,  equal  to  this  revenue,  and 
also  all  notes  paid  in  the  cancellation  of  loans.  In  February,  June  and 
November,  similar  burnings  were  to  take  place,  equal  to  the  same  income, 
but  not  to  exceed  $750,000  before  the  next  meeting  of  the  Legislature.  In 
another  act  it  was  recited  that  the  notes  of  the  Bank  of  Kentucky  and  the 
Bank  of  the  Commonwealth  were  so  dirty  and  worn  that  lists  could  not  be 
made  of  them,  by  letter  and  number,  as  required  by  law;  therefore  the 
president  and  directors  were  to  make  lists,  showing  the  amount  of  each 
denomination  burned  and  the  aggregate  of  each  class. 

At  the  session  of  the  Legislature  in  1822-3,  evidence  of  trouble  with  the 
Bank  of  the  Commonwealth  already  appears.  A  resolution  was  passed 
November  26,  1822,  ordering  that  the  Bank  of  the  Commonwealth  should 
call  up  only  one  per  cent,  per  month  of  its  loans,  instead  of  two  per  cent., 
which  it  was  demanding,  and  a  committee  was  appointed  to  examine  the 
bank.  Under  the  replevin  law,  the  Judges  instructed  the  jury  to  find 
"scaling  verdicts,"  rating  the  Judgment  sum  in  specie  according  to  the 
depreciation  at  the  time  of  the  contract.  This  sum  could  be  collected  after 
two  years,  unless  the'  creditor  endorsed  the  execution.  If  he  did  that,  he 
obtained  payment  in  three  months  in  paper  worth  about  fifty  cents  on 
the  dollar, — that  is,  he  obtained  about  one-fourth  of  his  original  claim.  J 

One  chief  reason  of  the  great  interest  attaching  to  the  history  of  Ken- 
tucky at  this  period  is  the  number  of  great  and  important  elements  which 
became  combined  in  it.  The  Xentuckians  had  been  the  strongest  anti- 
federalists.  It  was  they  who,  in  1798,  had  been  used  by  the  great  Virgin- 
ians to  enounce  doctrines  of  State  rights  which  the  latter  dared  not  utter 
themselves.  Until  Louisiana  was  bought  Kentucky  had  been  more  than 
lukewarm  to  the  Union.  The  Legislature,  as  early  as  1796,  had  been  at  war 
with  the  judiciary ;  had  tried  judge  breaking  and  legislating  judges  out  of 
office.  They  had  shown  their  respect  for  vested  rights  by  revoking  a  pension 
to  Judge  Muter  after  securing  his  resignation  by  granting  it.  In  the  midst 
of  the  history  with  which  we  are  now  occupied,  in  1821,  the  Supreme 
Court  of  the  United  States  decided  the  case  of  Green  versus  Biddle,  which 


•'  i.i 


:    ll 


'!,     * 


I 


'  Collins,  89. 


t  i}  NUm,  96. 


X  Lexington  "  Reporter,"  quoted  14  NUei,  391. 


w 


\ 


i\ 


.i 


I  ': 


128 


A  HISTORY  OF  BANKING. 


touched  the  people  Of  Kentucky  to  the  quick.  The  man  in  occupation  of 
land  was  a  voter,  neighbor,  friend,  relative.  By  the  carelessness  of  Virginia 
and  of  the  settlers  the  titles  were  often  disputed.  The  Legislature  repre- 
sented the  occupiers.  The  public  men  sought  the  favor  of  the  same.  An 
occupier,  if  ousted,  presented  a  real  object  of  commiseration,  for  he  had  lost 
the  labor  of  years.  Still  the  law,  right,  and  justice  of  the  case  might  bo  ail 
against  him,  and  his  troubles  might  be  all  his  own  fault. 

The  laws  of  Kentucky,  for  twenty-five  years,  aimed  to  enlarge  the  rights 
of  the  occupying  claimant  against  the  successful  contestant. 

In  Green  versus  Biddle  those  laws  were  declared  void  because  they  were 
in  violation  of  the  compact  with  Virginia  at  the  separation.  All  efforts  were 
exhausted  to  get  a  reversal  of  this  decision.  In  Bodley  versus  Gaither  (iSas), 
the  Supreme  Court  of  the  State  refused  to  be  controlled  by  the  decision  in 
Green  versus  Biddle.*  Inasmuch  as  the  Supreme  Court  of  the  United  States, 
in  Hawkins  versus  Barney's  Lessee  (1831),!  very  materially  modified  the 
ruling  in  Green  versus  Biddle,  the  Kentucky  State  rights  men  could  claim  to 
have  been  the  champions  of  justice,  truth,  and  right.  The  connection 
between  the  stay  laws  and  the  banking  system  has  already  been  shown. 

The  Kentuckians  were  alarmed  at  the  course  of  the  decisions  of  the 
Supreme  Court  of  the  United  States.  They  anticipated  the  effect  on  their 
bank  and  relief  system,  and  they  went  to  meet  the  inferences  hostile  to  their 
pet  measures,  which  seemed  to  flow  directly  from  the  law  as  expounded. 
Thus  a  clash  between  the  Legislature  and  the  judiciary,  and  another  between 
the  federal  and  State  authorities,  lay  in  the  relief  system  of  Kentucky. 

This  subject,  in  all  its  length  and  breadth,  was  opened  by  R.  M.  Johnson 
in  the  Senate  of  the  United  States,  January  14,  1822.  The  document  is,  like 
many  others  which  were  prepared  in  Kentucky  at  this  time,  and  in  connection 
with  these  measures,  very  ably  written.  It  must  have  been  prepared  with 
great  care  in  advance,  so  that  its  origin  goes  back  to  some  time  early  in  1821, 
and  soon  after  the  decision  in  Green  versus  Biddle.  On  the  points  which 
now  most  immediately  interest  us  he  said:  "I  know  of  no  clause  in  the 
federal  Constitution  that  gives  the  power  to  the  judiciary  of  declaring  the 
laws  and  Constitution  of  a  State  repugnant  to  the  Constitution  of  the  United 
States  and  therefore  null  and  void."  "No  State  shall  emit  bills  of  credit. 
This  prohibition  has  not  yet  produced  collision,  but  it  is  fairly  to  be  presumed 
from  the  principles  established  by  other  acts  of  adjudication  that,  if  the 
measures  of  certain  States  relative  to  banks  were  brought  before  the  Courts 
of  the  United  States,  they  would  be  declared  unconstitutional  and  void,  nor 
would  it  be  any  matter  of  surprise  should  the  supreme  judiciary  yet,  by  sucli 
a  decision,  obtain  control  over  the  policy  of  a  whole  community,  relative  to 
a  circulating  medium  for  any  special  and  necessary  purposes,  though  it  might 
not  be  pretended  that  such  currency  was  made  a  legal  tender.  Kentucky 
has  incorporated  a  bank  for  necessary  purposes.    Tne  crisis  of  the  country 


*  }  T.  B.  Monroe,  58. 


t  5  Peters,  457- 


L/QU/D/tT/ON  IN  THE  M/SS/SS/PPl  1/ ALLEY. 


139 


!1, 


demanded  it,  and  the  people  have  sanctioned  it  with  a  unanimity  almost 
unparalleled.  If  the  constitutionality  of  this  subject  were  brought  before  the 
federal  judiciary,  I  have  little  doubt  that  the  law  would  be  declared  null  and 
void,  and  the  State,  by  such  a  decision  of  persons  neither  interested  in  her 
policy  nor  responsible  to  her  citizens,  deprived  of  the  power  of  relief  in  these 
times  of  overwhelming  ditfjculty."  No  State  shall  pass  any  law  impairing 
the  obligation  of  contracts.  "The  Constitution  recognizes  a  principle  of 
morality  founded  on  justice  and  religion.  *  •  f  Each  State  is  the  judge 
of  its  own  honor  and  the  keeper  of  its  own  conscience."  "The  fund  upon 
which  executions  shall  operate  is  a  regulation  of  a  political  character  and 
subject  to  the  absolute  control  of  the  Legislature.  That  fund  may  be  extended 
or  contracted  at  the  will  of  the  State."  In  1821  Kentucky  abolished  imprison- 
ment for  debt,  but  at  the  same  session  of  the  Legislature,  extended  the  prison 
bounds  to  the  limits  of  the  county,  "  under  a  belief  that  the  federal  judiciary 
will  declare  this  law  abolishing  imprisonment  for  debt  unconstitutional,  as 
impairing  the  obligation  of  contracts." 

Stay  laws,  paper  money,  squatters'  rights  and  State  rights  had  now 
become  intertwined,  and  acted  and  reacted  on  one  another,  constantly 
intensifying  the  popular  exasperation  against  vested  rights,  creditors,  the 
Bank  of  the  United  States,  and  the  federal  government. 

In  a  great  political  debate,  in  the  Senate  of  the  State,  in  1838,  Wickliffe 
reviewed  all  this  history  in  the  face  of  the  men  who  had  had  part  in  it. 
He  denied  that  the  Bank  of  the  United  States  had  ruined  Kentucky.  He 
referred  to  the  creation  and  repeal  of  the  forty  banks,  and  to  the  sacrifice  of 
the  Bank  of  Kentucky  to  try  to  bolster  up  those  banks,  and  then  its  destruc- 
tion. "It  was  this  outrage  against  the  rights  of  contract  and  the  sacred 
honor  of  legislators  that  prostrated  Kentucky,  and  not  the  Bank  of  the  United 
States.  These  mad  measures  left  the  country  nothing  but  the  Bank  of  the 
United  States  to  hang  upon.  She  kept  the  even  tenor  of  her  way.  *  *  * 
No,  sir,  it  was  not  the  Bank  of  the  United  States  but  independent  bank 
makers,  property  law  makers,  judge  breakers,  and  paper  money  schemers 
that  then  ruled  and  ruined  Kentucky." 

In  no  case  which  we  have  found,  did  any  Court  of  any  grade,  in  any 
State,  support  the  stay  laws.  The  next  step  in  this  history,  which  we 
have  to  notice,  is  a  collision  between  the  people  of  the  State  of  Kentucky 
*  represented  in  the  Legislature,  and  their  own  judiciary. 

Judge  Clark  decided  the  case  of  Williams  vs.  Blair,  at  the  Bourbon  Cir- 
cuit Court,  ordering  the  recognizance  of  the  defendant  to  be  quashed  with 
costs  against  him,  the  endorsenicnt  act  of  1820  being  unconstitutional. 
May  18,  1822,  a  Committee  of  the  House  :i  Representatives  was  appointed 
"to  inquire  into  the  decision  of  [Judge  Clark]  and  report  thereon  to  this 
House."  The  preamble  recited  that  the  Judge  had  "given  a  decision  in 
contravention  of  the  laws  of  this  Commonwealth  called  the  endorsement  and 
replevin  laws,  and  therein  has  grossly  transcended  his  judicial  authority  and 
disregarded  the  constitutional  powers  of  the  Legislature  of  this  Common- 
9 


s 


I 


m 


IJO 


A  HISTORY  OF  BANKING. 


V: 


wealth."  Three  days  later  the  Judge  was  cited  to  appear  and  show  cause 
why  he  should  not  be  removed  from  office.  May  ayth  he  sent  a 
written  answer.  He  gave  a  list  of  cases  in  which  the  Supreme  Court  of  the 
State  had  ruled  acts  of  the  Legislature  unconstitutional  and  argued  the  neces- 
sity and  propriety  of  this  power  in  the  Judges,  both  under  the  federal  and 
State  Constitutions.  The  vote  on  the  motion  to  address  the  Governor  to 
remove  the  Judge  was  59  to  35.  "The  National  Intelligencer,  "  from  which 
the  account  is  taken,  says:  "The  key  to  the  unusual  excitement  caused  by 
this  opinion  is  to  be  found  in  the  fact  which  is  stated  in  the  '  Louisville 
Advertiser'  that  this  opinion  of  Judge  Clark  was  supposed  to  have  an  indi- 
rect bearing  upon  the  charter  of  the  Bank  of  the  Commonwealth.  A  major- 
ity of  the  Senate  is  said  to  have  been  opposed  to  the  proposed  removal  of 
the  Judge." 

Upon  appeal,  this  case  of  Williams  vs.  Blair,  and  that  of  Lapsley  vs. 
Brashears  came  up  together  and  the  decision  of  them  formed  a  crisis  in  the 
great  drama  whose  elements  had  been  gathering  for  eight  or  ten  years.* 
The  records  of  these  cases  were  burned  in  the  civil  war,  but  the  reports 
state  the  essential  features  of  them.  In  the  former  case,  Blair,  Ingles,  and 
Barr  gave  a  note  to  Williams,  November  \2,  18 19,  which  they  did  not  pay 
at  maturity.  He  obtained  judgment,  whereupon,  under  the  stay  law,  they 
entered  into  a  recognizance,  in  the  clerk's  otfice,  to  pay  within  two  years. 
Williams  moved  to  quash  this  recognizance,  on  the  ground  that  the  law  was 
unconstitutional.  He  won  as  above  stated.  The  decision,  on  appeal,  was 
rendered  by  Judge  Boyle,  October  8,  1825,  as  follows:  "A  law  passed  after 
a  contract  is  made,  extending  the  term  of  replevin  on  a  judgment  rendered 
on  such  contract  impairs  the  obligation  of  the  contract,  and  violates  the  Con- 
stitution of  the  United  States." 

The  case  of  Lapsley  was  argued  on  both  sides  by  the  leading  public  men 
of  the  two  political  parties,  which  were  now  forming  in  the  State,  upon  the 
issue  of  the  relief  system;  Harrison,  Breckenridge,  and  Wickliffie  for 
Lapsley;  Haggin,  Barry,  and  Rowan  for  Brashears. 

The  story  of  this  latter  case  is  worth  telling  at  length,  as  an  illustration  of 
the  relief  system.  Brashears  was  indebted  to  Lapsley  on  a  contract. 
Lapsley  got  judgment  for  the  debt,  with  interest  from  March  i,  1815. 
Brashears  was  imprisoned  for  the  debt  and  then  allowed  the  liberty  of  the 
prison  rules  on  a  bond,  with  Barr  as  surety.  He  broke  the  rules.  Lapsley 
brought  suit  against  him  and  his  surety  on  the  bond,  and  got  judgment, 
January,  1816.  Soon  after  this  Lapsley  died.  His  administrator,  also  named 
Lapsley,  got  judgment  to  have  execution  in  January,  18 17.  h  fieri  facias 
was  issued  April  23d.  June  17th,  the  defendants  and  an  additional  surety 
executed  a  replevin  bond  to  pay  within  twelve  months,  and  the  sheriff" 
returned  the  writ  endorsed  to  that  effect.  The  bond  was  lodged  with  the 
clerk  of  the  Court.    August  15,  1818,  a  fieri  facias  was  issued  to  the  sergeant 


*  4  UttcU,  }4 ;  57. 


LIQUIDATION  IN  THE  MISSISSIPPI  GALLEY. 


Ui 


of  the  Court  of  Appeals  on  the  replevin  bond,  but  it  was  returned  "stayed 
by  injunction."  September  35th,  the  injunction  was  dissolved.  October  12, 
\%2\,  a  new  furifai Ills  was  issued  on  the  replevin  bond.  October  2),  1823, 
the  three  defendants,  bringing  in  now  another  supjty,  as  was  necessary  at 
every  step,  executed  another  replevin  bond  to  pay  ir  two  years,  under  the 
endorsement  law  of  1820.  The  sheriff  made  retui  n  accordingly.  In  January, 
1833,  Lapslcy  moved  to  quash  this  replevin  bond  and  the  return.  This 
motion  was  overruled;  both  sides  appealed.  October,  1823,  the  Court  of 
Appeals  heid  that  the  endorsement  law  was  unconstitutional,  and  remanded 
the  case  to  the  Circuit  Court  for  reversal  and  disposition,  in  accordance  with 
this  decision.  Here  we  lose  sight  of  the  case,  after  eight  and  a-half  years  of 
litigation,  and  are  left  to  wonder  whether  Lapsley  ever  got  his  money. 

It  was  because  the  defendant  in  this  case  was  frustrated  in  the  course  of 
action  which  he  was  pursuing  to  escape  an  adjudicated  debt  that  the  relief 
orators  were  so  alarmed  about  rights  and  justice,  and  so  vehement  in  their 
denunciation  of  the  judiciary  and  of  "judge-made"  law. 

It  Is  significant  of  the  entanglement  of  this  question  with  the  other  great 
political  and  social  questions  of  the  time  that,  in  a  petition  for  a  new  trial, 
although  the  whole  matter  was  a  case  of  debt  in  a  State  <.ourt,  Bibb  enlarged 
upon  the  danger  that  diminution  of  the  power  of  the  States  would  make  a 
consolidated  government,  which,  in  so  vast  a  territory  as  that  of  the  United 
States,  would  be  inconsistent  with  the  existence  of  a  free  republic. 

Instead  of  producing  acquiescence  and  a  settlement  of  pending  controver- 
sies, this  decision  became  the  starting  point  of  a  political  struggle  which 
lasted  for  seven  or  eight  years,  and  was  marked  by  the  bitterest  and  most 
malignant  passion.  Indeed  a  direct  train  of  consequences  may  be  t 'aced  far 
down  into  the  history  of  the  politics  and  constitutional  law  of  the  federal 
government.  The  proceedings  of  the  Court  were  regarded,  by  about  half  of 
the  people  of  Kentucky,  as  a  usurpation  by  the  Judges. 

Governor  Adair,  in  his  message  of  that  year,  approved  of  the  relief  system 
and  denounced  the  courts  for  deciding  the  replevin  laws  unconstitutional. 
After  his  term  expired,  he  petitioned  for  redress  on  account  of  the  payment 
of  his  salary  in  depreciated  paper.* 

At  the  following  session  of  the  Legislature,  the  all  absorbing  topic  was 
the  decision  of  the  Court  in  these  cases.  December  29,  1823,  a  long  docu- 
ment was  adopted, t  containing  an  argument  against  the  right  of  the 
Courts  to  declare  laws  unconstitutional.  It  went  deeply  into  the  meta- 
physics of  obligation,  the  old  subtleties  of  distributive  and  commutative  jus- 
tice, the  social  compact,  and  the  laws  of  nature;  then  followed  an  argument 
against  the  decision.     Of  the  Bank  of  the  United  States  it  was  said:  "Its 

motto  is,   'Pay  me  that  thou  owest  me. A  rigid  punctuality  (but  ill 

according  with  the  agricultural  habits  and  varying  condition  and  resources 
of  most  of  the  States)  is  exacted  by  that  institution."    The  decision  means 


I  5f  ■ 


•  2^  Niles,  188. 


t  Session  laws  of  i8?j-4,  448. 


u^ 


A  HISTORY  OF  BANKING. 


M' 


1 


that  the  existing  remedy  is  binding  on  the  State  and  the  debtor,  but  not  on 
the  creditor.  Hence  the  Legislature  protests  against  the  doctrines  of  the 
decisions,  "as  ruinous  in  their  practical  effects  to  the  good  people  of  this 
Commonwealth,  and  subveroive  of  their  dearest  and  most  invaluable  politi- 
cal rights."  The  decisions  are  then  declared  erroneous.  The  Legislature 
will  take  no  steps  to  interfere  with  the  administration  of  justice  ;  but  Ken- 
tucky will  not  submit  to  judicial  tyranny.*  A  protest  is  then  uttered  against 
Green  vs.  Biddle  and  it  is  declared  that  a  protest  ought  to  be  sent  to  Congress, 
and  that  such  an  organization  of  the  Supreme  Court  ought  to  be  secured, 
that  no  State  law  could  be  declared  unconstitutional  witiiout  a  two-thirds 
majority  of  the  Judges.  A  remonstrance  and  memorial  to  Congress  of  this 
character  was  later  adopted.  Thus  we  find,  at  this  point,  the  stay  laws,  the 
banks  and  the  squatters'  rights  all  commingled. 

In  1824,  the  Court  of  Appeals  decided  that  a  remedy  which  was  applica- 
ble to  a  note  for  the  payment  of  money  could  not  be  given  for  a  note  "pay- 
able in  the  money  of  this  State,"  which  was  held  to  mean  the  current  paper 
money;  but  bank  notes  are  not  money.t 

January  5th,  of  that  year,  the  Judges  were  ordered  not  to  scale  debts  for 
contracts  in  notes  of  the  Bank  of  Kentucky  or  the  Bank  of  the  Common- 
wealth, but  judgment  was  to  be  given  in  the  paper.  If  the  plaintiff 
endorsed  this  paper  on  the  execution,  the  replevin  was  to  be  only  three 
months.  The  Court  of  Appeals,  construing  this  law,  held  that  it  did  not 
apply  to  any  contract  made  before  its  passage,  no  matter  when  the  action 
was  begun,  and  that  the  Court  could  not  take  judicial  notice  of  the  value  of 
the  notes  of  the  Bank  of  the  Commonwealth  on  any  particular  date.J  It  was 
also  decided,  in  another  case,  that  bank  paper  was  not  money,  nor  an 
ultimate  measure  of  value,  the  point  at  issue  being  whether  it  could  be  sold 
without  imputation  of  usury.  § 

All  the  two  year  replevin  laws  were  repealed  January  7,  1824,  to  take 
effect  from  June  ist  following.  Replevin  after  that  was  to  be  for  three 
months,  and  if  no  bond  was  given,  the  sale  was  to  be  on  credit  for  three 
months.  The  date  of  the  contract  was  to  be  on  the  judgment.  Real  estate 
in  execution  was  to  be  valued  by  the  county  commissioners  in  gold  and 
silver.  On  the  same  day,  the  Bank  of  the  Commonwealth  was  ordered 
to  continue  its  calls  at  one  per  cent,  per  month.  All  its  notes  and  those  of 
the  Bank  of  Kentucky  were  to  be  called  in  from  the  branches  and  held  sub- 
ject to  the  order  of  the  Legislature.  Officers  of  the  Bank  of  the  Common- 
wealth were  to  be  called  on  to  pay  their  loans,  like  other  debtors.  Three 
years  from  this  date  were  allowed  for  the  independent, banks  to  wind  up, 

*  The  Legislature  of  Georgia  pnssed  joint  resolutions,  Novemtter  29.  181 5.  denouncing  the  Judges  of  the  Superior  Court 
for  having  passed,  in  the  previous  January,  on  the  constitutionality  of  State  laws.  It  was  declared  that  if  the  Legislature 
yielded  to  this  action,  "  it  would  be  an  abandonment  of  the  dearest  rights  and  liberties  of  the  people."  They  will  take  no 
further  step,  hoping  that  this  condemnation  will  sutTict. 

t  5  l-iltell,  335- 

i  ',  T.  B.  JMonroe,  336  (1817).  ^ 

I  I  J.  j.  Marshall,  47  0819).  ' 


LIQUIDATION  IN  THE  MISSISSIPPI  l^ ALLEY. 


133 


iree 
up, 


provided  they  would  endorse  on  writs  to  collect  their  loans  that  they  would 
receive  Commonwealth  notes.  One  point  in  the  endorsement  law  of 
December  25,  1820,  which  provided  that  no  fee  bill  should  be  put  in  execu- 
tion within  two  years  after  it  became  due,  unless  endorsed  to  receive  Bank 
of  Kentucky  and  Commonwealth  notes,  remained  in  effect  until  February  22, 
18^4. 

December  6,  1824,  the  Legislature  appointed  a  Committee  of  investiga- 
tion to  find  out  the  character  of  the  debts  to  the  Bank  of  the  Common- 
wealth, and  report  how  many  of  them  were  bad.  They  also  stated  in  their 
resolution  that  some  directors  of  the  Bank  had  not  complied  with  the  law  to 
pay  their  debts  to  it. 

At  the  State  election  of  1824,  the  struggle  was  to  elect  a  Legislature,  two- 
thirds  of  which  would  address  the  Governor  for  the  removal  of  the  Judges 
who  had  decided  the  relief  laws  unconstitutional.  A  majority  was  obtained, 
but  not  two-thirds. 

Another  course  was  therefore  adopted.  November  13,  1824,  a  select 
committee  on  the  behavior  of  the  Judges  was  raised,  which  made  an  elaborate 
report  to  the  effect  that  the  Legislature  ought  to  be  supreme,  and  ought  not 
to  be  ruled  by  the  judiciary.  Resolutions  were  reported  that  the  decision 
under  review  encroached  on  the  field  of  the  Legislature  and  the  rights  of  the 
people.*  This  led  up  to  a  law  of  December  24th,  by  which  all  the  laws 
organizing  the  Court  of  Appeals  were  repealed,  and  a  new  court  was 
organized. 

The  old  court  denied  the  constitutionality  of  the  repeal  and  of  the  new 
court,  and  continued  its  existence ;  so  that  there  were  two  courts.  The  new 
court  ordered  Achilles  Sneed,  clerk  of  the  old  court,  to  deliver  the  records  to 
Francis  P.  Blair,  clerk  of  the  new  court.  Upon  Sneed's  refusal,  he  was  fined 
and  his  papers  were  seized.  A  war  of  vituperative  pamphlets  ensued.  It  is 
said  that  Blair  and  Kendall  were  amongst  the  pamphleteers  on  the  new  court 
side.  Kendall  had  described  the  relief  system  very  justly  in  i82i.t  His 
biographer  says  that  he  never  doubted  the  constitutionality  of  the  relief 
measures,  and  so  was  driven  to  defend  them.  As  a  director  of  the  Bank  of 
the  Commonwealth,  he  insisted  on  a  conservative  policy  in  that  institution.! 
There  is  a  gap  in  his  autobiography  from  1823  to  1829,  and  it  is  unfortunately 
impossible  to  trace  the  influences  which  moulded  his  feelings  and  opinions. 
All  the  leading  men  on  the  new  court  side  imbibed  the  intensest  animosit" 
against  the  Bank  of  the  United  States,  Blair  and  Kendall  perhaps  more  than 
any  others. 

When  Kendall  went  to  Washington,  in  1829,  he  became  responsible  for  a 
positive  and  circumstantial  assertion  tha*^  the  Bank  of  the  United  States  gave 
pecuniary  aid  to  the  old  court  party  in  the  election  of  182s;  which  statement 
became  of  the  very  first  importance  in  the  Bank  war.  When  Kendall  was 
called  on  for  his  proofs,  he  could  only  repeat  the  assertion  from  hearsay,  but 


,f-  ^  ■ 


!  ':j 


'.<  -l*. 


*  Session  Laws  of  i8i4-5,  m. 


t  Kendall's  Autobiography,  146. 


X  Democratic  Review,  March,  1838. 


•A. 


,.*--'^ 


>M 


A  HISTORY  OF  BANKING. 


could  not  produce  the  responsible  authors  of  it.*  Nevertheless,  the  story 
was  often  repeated,  and  the  "Globe,"  in  1831,  re-printed  it  in  its  original 
form.t 

The  new  court  held  the  records  during  1825  by  military  force,  and  civil 
war  was  avoided  only  by  the  moderation  of  the  old  court.  J 

In  November,  1825,  Niles  quotes  a  Kentucky  paper  that  more  people  had 
left  the  State  than  had  come  to  it  for  many  years.  It  is  plain  that  two  classes 
of  persons  were  driven  away  by  the  relief  system, — those  who  were  prevented 
by  it  from  securing  such  fruits  of  their  industry  as  they  could  accumulate, 
and  those  whodespaired  of  everfreeing  themselves  from  their  embarrassments. 

In  the  mean  time  the  federal  Supreme  Court  had  gone  on  its  way  making 
decisions  which  established  the  authority  of  the  federal  Constitution  and  the 
federal  judiciary  and  so  integrated  the  whole  national  system.  Of  these 
decisions,  one  which  was  rendered  in  1825,  Bank  of  the  United  States  versus 
Halstead,§  directly  affected  Kentucky.  It  was  held  that  the  federal  courts 
could  alter  the  forms  of  execution  which  were  in  jse  in  the  States  in  1789,  so 
as  to  subject  to  execution  lands  and  other  property  not  then  subject,  and 
that  the  law  of  Kentucky  of  1821  did  not  apply  to  writs  issued  from  the 
federal  courts.  || 

These  decisions  were  all  received  with  astonishment,  contempt  and 
abhorrence,  not  only  by  the  radical,  but  also  by  the  moderate  State  rights 
men  of  the  time.  There  was  a  great  deal  of  declamation  in  Kentucky  in 
1825  about  rights,  liberty.  Justice,  and  the  sovereignty  of  the  people;  but  as 
the  "  Lexington  Reporter"  said:  What  a  mockery  to  talk  of  justice,  freedom, 
and  happiness  when  the  Constitution  was  brought  to  the  level  of  such  legisla- 
tive acts  as  had  been  adopted  by  the  relief  party.  If 

The  concurrent  effect  of  the  distress  in  the  State,  the  sad  position  of  the 
debtors,  the  political  animosity  which  had  been  aroused,  and  the  anxiety 
about  great  principles  of  constitutional  liberty  which  had  been  caused  by  the 
judicial  decisions  which  have  been  referred  to,  was,  to  make  the  political 
campaign  between  the  old  and  new  court  parties  in  1825  exceedingly  intense. 
The  old  court  party  won  a  majority  in  the  lower  House.  The  Senate  which 
held  over  was  still  of  the  new  court  party.  A  crisis  had  therefore  been 
reached,  but  it  could  not  be  solved  for  the  time  being,  because  neither  party 
was  in  a  position  to  win  a  victory. 

The  message  of  Governor  Desha**  of  November  7th,  1825, ft  reflects  all 
the  elements  of  excitement  and  warfare  which  were  in  the  situation.  "The 
most  prominent  objects,"  he  says,  "which  will  arrest  your  attention  are  the 


•  42  Niles,  315. 
+  See  page  19^. 
X  Collins,  105. 
g  10  Wheaton,  51. 

II  It  was  ordered  by  act  of  Congress,  May  19,  1818,  that  the  forms  of  writs  and  proceedings  in  executions  in  the  federal 
courts  should  be  the  same  as  then  were  used  in  the  State  courts,  in  the  State  in  which  the  proceedings  were  held. 
1  24  Niles,  391  (1833). 

**  This  is  the  gentleman  mentioned  above,  p.  51. 
tt»9  Niles,  219. 


LIQUIDATION  IN  THE  MISSISSIPPI  y ALLEY. 


>35 


all 
The 
Ithe 


leral 


existing  differences  in  our  judiciary  and  the  encroachments  of  the  federal 
tribunals."  Two  branches  of  the  Bank  of  the  United  States  have  been 
established  in  the  State  without  due  consideration  of  the  interests  of  the 
people,  who  "justly  alarmed  for  the  rights  of  the  State  and  the  purity  of  their 
republican  institutions "  want  these  banks  removed  or  taxed.  "But  the 
Judges  of  the  federal  Court,  assuming  to  themselves  the  prerogative  of 
restricting  the  taxing  power  of  this  State"  forbade  this  tax,  and  the  State 
judiciary,  although  they  thought  the  Bank  of  the  United  States  unconstitutional 
and  the  tax  constitutional,  have  yielded  to  the  Supreme  Court  of  the  United 
States.  "Since  this  surrender  of  the  acknowledged  rights  of  the  State  by 
those  who  were  made  their  special  guardians,  the  branches  of  the  United 
States  Bank,  exempt  from  the  burdens  imposed  on  the  wealth  of  our  own 
citizens,  have  proceeded  to  purchase  up  the  real  property  of  the  country  and 
fill  it  with  tenantry."  [It  was  never  ascertained  what  facts  he  meant  to  refer 
to  by  this  statement.]  "These  institutions  for  a  series  of  years  have  carried 
on  a  systematic  attack  upon  the  legislative  power  of  the  State  for  the  double 
purpose  of  curtailing  the  sphere  of  its  exercise  and  rendering  themselves 
wholly  independent  of  its  authority. "  He  refers  to  the  relief  laws  as  ' '  statutes 
whose  principles  have  been  sanctioned  by  all  authorities,  State  and  federal, 
from  the  date  of  the  Constitution  down  to  the  establishment  of  these 
institutions"  [the  branches  of  the  Bank  of  the  United  States].  They  and 
their  friends  have  attacked  these  laws.  The  Svate  Court  of  Appeals  has 
declared  them  unconstitutional,  and  the  federal  Supreme  Court  has  decided 
that  if  they  were  constitutional,  they  were  not  binding  on  the  federal  court. 
"  And  the  federal  Judges  for  the  Kentucky  district  have  actually  made  their 
code,  and  put  it  into  operation,  by  which  our  citizens  are  imprisoned  in  direct 
violation  of  our  laws,  and  their  property  seized  and  sold  in  modes  not  pro- 
vided in  their  statute  book."  This  is  "nothing  short  of  despotism." 
The  federal  courts  have  made  the  Bank  of  the  United  States  inde- 
pendent of  State  laws  and  tribunals.  "The  wrongs  suffered  by  this 
State  from  the  decision  of  the  Supreme  Court  of  the  United  States 
declaring  our  occupants'  law  to  be  unconstitutional  have  not  been  redressed." 
"It  is  my  firm  belief  that  in  the  insecurity  now  felt  by  numberless 
cultivators  of  our  soil  may  be  found  the  chief  cause  of  that  extensive 
emigration  which  is  now  thinning  the  population  of  some  of  the  finest 
sections  of  our  State."  "The  doctrine  of  our  late  Court  of  Appeals  that  an 
opinion  of  the  Supreme  Court  of  the  United  States  on  subjects  involving  the 
rights  of  the  State  is  binding  and  conclusive  upon  the  State  authorities  is 
believed  to  be  not  only  erroneous  but  fatal  to  the  sovereignty  of  the  States." 
The  Supreme  Court  is  a  part  of  the  general  government  whose  encroachments 
are  complained  of.  The  States  can  get  no  more  justice,  therefore,  than  an 
individual  could,  if  judged  by  his  oppressors.  The  new  court  of  the  State  has 
banished  "  the  doctrine  of  ready  submission  to  the  unconstitutional  decrees 
of  the  Supreme  Court."  What  Kentucky  wants  is  another  reformation  of  the 
federal  judiciary,  such  as  occurred  at  Jefferson's  accession.     The  relief  laws 


it 


C\ 


136 


A  HISTORY  OF  BANKING. 


have  been  repealed  "as  to  all  contracts  formed  after  the  repeal,  and  their 
operation  has  almost  ceased  to  be  felt  in  our  courts  of  justice;  but  the 
questions  of  legislative  power  and  judicial  right,  which  have  sprung  from 
some  of  those  laws  and  outlived  them,  are  of  vital  importance  to  the  govern- 
ment as  well  of  this  State  as  of  every  other  in  the  Union."  Virginia  had  a 
law  like  the  replevin  law  in  1789  and  re-enacted  it  afterwards  several  times, 
even  after  Kentucky  became  an  independent  State.  Kentucky  has  practiced 
on  the  same  principle  and  the  principle  has  never  been  wholly  eradicated 
from  her  laws.  The  constitutionality  of  these  laws  "seems  never  to  have 
been  doubted  until  the  interest  of  the  United  States  Bank  made  it  necessary 
that  new  and  more  rigid  principles  should  be  incorporated  into  our  system 
of  government."  The  decision  of  the  State  court  "that  the  remedial  law  in 
existence  when  a  contract  is  made,  constitutes  the  obligation,  and  that  no 
State  Legislature  can  so  change  that  law  as  to  delay  the  remedy"  has 
"wrested  from  the  representatives  of  the  people  the  power  to  suspend  the 
operation  of  the  laws  in  any  case  of  contract  even  in  time  of  insurrection, 
war,  pestilence,  or  famine."  He  justifies  the  act  legislating  the  old  court  out 
of  oifice  in  order  to  "rid  the  country  of  these  erroneous  and  dangerous 
principles, "  including  the  notion  that  the  Judges  could  not  be  called  to  account. 
The  old  court  has  gone  on,  but  without  any  breach  of  the  peace ;  hence  the 
Executive  has  not  thought  it  his  duty  to  molest  them.  Lately  they  have 
shown  a  disposition  to  force  the  execution  of  their  orders.  If  they  do  this 
the  writer  will  perform  his  painful  duty.  "  Instead  of  quieting  the  country 
as  was  ardently  desired,  the  act  of  the  last  session  re-organizing  the  Court  of 
Appeals,  together  with  other  causes  made  to  operate,  has  filled  it  with  new 
agitations."  The  people  are  dissatisfied  with  the  re-organizing  act.  Neither 
the  old  nor  the  new  court  can  unite  upon  themselves  the  confidence  of  both 
parties  or  exercise  judicial  power  without  doubt  as  to  the  validity  of  their 
acts.  If  the  Legislature  sees  fit  to  provide  for  the  appointment  of  an  entirely 
new  set  of  appellate  judges,  he  will  select  them  equally  from  both  parties. 
The  salaries  should  be  reduced  to  $1,500,  which  by  the  appreciation  of  the 
currency  would  be  equal  to  $2,000,  a  year  before.  The  salaries  of  the  officers 
of  the  Bank  of  Kentucky,  the  Bank  of  the  Commonwealth,  and  the  officers 
of  the  Transylvania  University  should  be  reduced.  The  stock  of  the  Bank  of 
Kentucky  owned  by  the  State  and  the  profits  of  the  Bank  of  the  Common- 
wealth are  a  disposable  fund  which  should  be  used  for  turnpike  roads  and 
other  improvements.  The  appreciation  of  the  currency  has  increased  the 
burden  of  taxes.  This  should  be  "remedied.  The  execution  laws  are  in  a 
state  of  chaos  on  the  statute-book  and  require  revision. 

The  offer  of  Desha  to  constitute  a  new  court  equally  from  the  two  exist- 
ing ones,  if  all  the  Judges  would  resign,  was  due  to  the  fact  that  the  new 
court  was  losing  ground.  The  bar  of  the  State  was  not  willing  to  risk  the 
validity  of  its  decisions.* 

*  Brown's  Address. 


k 


of 
n- 
id 
le 
a 


LIQUIDATION  IN  THE  MISSISSIPPI  GALLEY. 


'37 


At  the  session  of  1825-6,  the  House  voted  to  abolish  the  new  court;  but 
the  Senate,  by  the  casting  vote  of  the  Lieutenant-governor,  refused  to  concur. 

The  bitterness  of  the  parties  to  this  old  and  new  court  contest  is  illus- 
trated by  the  fact  that  a  three  days'  argument,  shared  in  by  all  the  leading 
lawyers  of  the  day,  was  held  upon  the  application  of  a  gentleman  to  be 
admitted  to  practice  in  the  Woodford  Circuit  Court,  he  having  been  licensed 
as  an  attorney  by  the  old  court  after  that  court  had  been  legislated  out  of 
existence.  The  Judge  did  not  dare  to  decide  the  question,  but  allowed  him 
to  practice  out  of  courtesy.* 

After  another  hotly  contested  election,  in  1826,  the  old  court  was  in  con- 
trol of  both  Houses.  December  30,  1826,  a  law  was  passed  over  the  Gov- 
ernor's veto,  "to  remove  the  unconstitutional  obstructions  which  have  been 
thrown  in  the  way  of  the  Court  of  Appeals."  In  the  preamble  it  is  said: 
"The  above  recited  acts  have  been  decided  by  the  good  people  of  this  Com- 
monwealth at  two  successive  elections,  to  be  dangerous  violations  of  the 
Constitution,  and  subversive  of  the  long  tried  principles  upon  which  experi- 
ence has  demonstrated  that  the  security  of  life,  liberty,  and  property 
depends."  The  two  acts  erecting  the  new  court  and  fixing  the  salaries  of 
the  Judges  in  it  were  repealed,  and  all  the  acts  which  the  new  court  act 
had  repealed  were  revived.  January  11,  1827,  an  act  was  passed  to  try  to 
bridge  over  the  new  court  time.  The  peiiod  from  November  30,  1824,  to 
April  I,  1827,  was  to  be  considered  non  in  the  Court  of  Appeals,  and  the 
clerk  of  the  new  court  was  to  deliver  to  the  clerk  of  the  old  court  all  papers 
"in  any  wise  pertaining  to  the  Court  of  Appeals."  The  second  volume  of 
T.  B.  Monroe's  reports  contains  the  decisions  in  seventy-seven  cases,  which 
have  never  been  cited  by  the  Supreme  Court  of  the  State,  being  the 
decisions  of  the  new  court. 

In  1827,  the  currency  of  the  States  in  the  Mississippi  Valley  was  very 
much  improved.  There  remained,  as  was  said,  only  $800,000  of  Common- 
wealth paper  out,  and  this  was  merchandise,  not  currency.  The  bank  held 
notes  of  individuals  to  the  amount  of  one  and  a-half  millions  and  real  estate 
worth  $30,592.  Hence  there  was  due  to  it  a  balance  from  the  public,  after 
all  its  notes  should  be  paid  in,  of  $600, 000. f  Its  debtors  had  this  to  pay  in 
specie  or  its  equivalent,  or  else  the  Bank  would  get  their  property.  No  other 
instance  is  kno  vn  in  which  debtors  had  to  endure  so  great  an  appreciation 
between  the  time  of  borrowing  and  repaying  as  in  the  case  of  this  paper 
money  machine.  No  one  has  ever  explained  how  any  paper  money 
machine  could  act  otherwise  unless  there  should  be  constant  new  issues, 
depreciating  more  and  more  until  they  reached  zero.  On  its  paper  issue  of 
notes  nominally  for  $3  millions  it  had  won  $600,000  worth  of  property  in  five 
years.  Who  got  this  gain  ?  It  seems  that  there  must  have  been  personal 
interests  at  stake  to  account  for  the  intensity  of  feeling  which  was  enlisted  in 
its  defense,  especially  on  the  part  of  a  clique  of  leading  politicians. 


*  B.  F.  Buckner's  Address  to  the  Kentucky  Bar  Association. 


t  31  Niles,  310.    Cf.  slso  29  Niles,  329. 


I1 


U8 


A  HISTORY  OF  BANKING. 


1   ( 


No  positive  evidence  has  been  found  as  to  the  course  of  prices  in  the 
State  from  1820,  but  nothing  indicates  that  the  issues  of  the  Bank  of  the 
Commonwealth  raised  prices  in  the  interest  of  debtors.  In  general,  the  his- 
tory of  currency  in  this  country  shows  that  the  doctrine  that  prices  will 
respond  promptly  and  proportionately  to  changes  in  the  amount  of  the  cur- 
rency (or  even,  more  strictly,  of  the  money  of  account),  cannot  be  accepted 
without  important  limitations. 

In  1827,  the  old  court  Chief  Justice,  Boyle,  resigned  and  Bibb,  new  court, 
took  his  place.  In  1828  Owsley  and  Mills,  old  court,  resigned  and  Governor 
Metcalf  re-appointed  them.  The  Senate,  which  was  then  in  the  hands  of 
the  relief  party,  refused  to  confirm  them.  They  had  been  members  of  the 
Court  which  had  declared  the  relief  laws  unconstitutional  in  1823,  and  this 
action  was  an  expression  of  the  relentless  animosity  with  which  ,they  were 
pursued  by  the  relief  party.  Two  other  anti-relief  men,  Robertson  and 
Underwood,  were  appointed  and  confirmed.  Bibb  then  resigned ;  whereupon 
the  other  two  Judges  declared  the  new  court  acts  null  and  void.  In  1829, 
Robertson  was  made  Chief  Justice  and  Buckner,  anti-relief,  was  appointed, 
making  the  Court  complete  again. 

In  1828,  the  parties  were  still  relief  and  anti-relief,  but  the  ideas  had 
changed  somewhat.  The  banking  and  currency  parts  of  the  relief  creed  had 
sunk  out  of  sight  and  the  political  elements  remained.  A  relief  man  was  a 
State  rights  man  and  strict  constructionist  who  wanted  to  set  limits  to  the 
supposed  encroachments  of  the  federal  power,  especially  the  judiciary. 

If  the  amounts  of  Commonwealth  notes  reported  burned,  in  Niles'  Regis- 
ter, from  time  to  time,  during  1823,  are  added,  the  total  is  $2,171,000, 
although  the  amount  to  be  burned  in  that  year  had  been  limited  by  the  Leg- 
islature to  $750,000.  In  November,  1823,  it  was  reported  that  the  Legisla- 
ture had  resolved  to  issue  no  more,  and  that  one-sixth  of  the  total  issue  had 
been  burned.*  The  total  issue,  up  to  October,  1825,  was  reported  as 
$2,943,620,  of  which  $1,436,239  were  still  outf  Notes  to  the  amount  of 
$420,000  were  reported  as  withdrawn,  boxed,  and  sealed  by  order  of  the 
Legislature.  The  specie  and  specie  funds  of  the  bank  were  $16,000.  The 
amount  ordered  burned  by  the  Legislature,  from  year  to  year,  by  the  resolu- 
tions which  are  to  be  found  in  the  Session  Laws  from  1825  to  1834,  is 
$1,775,414.  The  last  order  is  that  all  which  is  taken  in  shall  be  burned.  In 
1828,  on  the  other  hand,  the  Legislature  allowed  $1,000  of  the  notes  of  this 
Bank  to  be  taken  from  the  Treasury  by  the  Cumberland  Hospital  to  pay  for 
new  buildings.  The  note  in  Briscoe's  case  was  made  in  1830,  so  that  the 
Bank  must  have  been  doing  business  then.  By  an  act  of  that  year,  January 
29th,  the  president  and  directors  were  ordered  to  withdraw  branches  which 
did  not  pay,  which  had  been  mismanaged,  and  which  the  interests  of  the 
State  required  should  be  withdrawn.  An  agent  was  to  go  to  such  branches 
and  do  the  business,  including  the  renewal  of  notes  half-yearly.     If  the 


*  25  Nues,  195. 


1 39  Niles,  239. 


;</ 


LIQUIDATION  IN  THE  MISSISSIPPI  GALLEY. 


U9 


V. 


V 
Ih 

lie 

ps 

Le 


renewal  was  neglected  for  sixty  days,  suit  was  to  be  brought.  Semi-annual 
reports  by  the  branches  to  the  head  office  were  to  be  required.  All  debts 
were  to  be  called  in,  so  as  to  be  paid  by  June  i,  1834.  No  renewal  was  to 
be  made  without  security,  and  no  new  loans  were  to  be  made  under  any 
pretense  whatever.  Salaries  were  to  be  paid  in  Commonwealth  notes.  All 
receivers  for  the  Bank  were  to  pay  to  it  the  same  paper  which  they  received, 
or  otner  of  equal  value.  In  that  year,  several  branches  of  the  Bank  of  the 
Commonwealth  were  broken  open  and  notes  were  stolen.*  January  15, 
i8ji,  the  agents  of  the  Bank  of  the  Commonwealth  were  to  take  oath  that 
they  were  complying  with  the  requirement  to  pay  to  the  bank  the  currency 
received  by  them. 

In  iSji,  a  new  Commonwealth  Bank  was  projected.  A  later  generation 
of  debtors  did  not  see  why  the  State  should  not  repeat  on  their  behalf  what 
it  had  done  for  those  of  iSacf 

In  1833,  and  again  in  1837,  the  bank  was  required  to  credit  the  Treasurer 
with  the  amount  which  he  owed  to  it,  and  in  the  last  year  it  was  enacted 
that  ' '  the  said  bank  shall  hereafter  redeem  all  its  notes  in  specie,  as  well 
when  presented  by  the  Treasury  as  other  persons." 

The  counsel  for  the  bank,  in  Briscoe's  case,  declared  that  there  were  not 
over  $40,000  of  its  notes  outstanding,  and  that  perhaps  that  amount  had 
been  lost.  In  1834,  an  official  report  showed  $56,843  outstanding,  and  notes 
of  the  Bank  of  Kentucky  to  the  amount  of  $31,081.1  The  former  were 
quoted  at  Philadelphia  in  1830  at  thirty-five  discount;  the  latter  at  twenty-five 
discount.  In  1835,  the  corresponding  quotations  were  Commonwealth,  six- 
teen discount ;  Bank  of  Kentucky,  thirteen  discount.  The  sales  of  land,  at 
this  time,  had  absorbed  them  to  such  an  extent  as  to  raise  their  value.  § 

This  means,  as  the  net  final  result  of  this  financial  device,  that  the  State 
had  given  to  the  debtors  of  1820  its  lands  with  which  to  pay  their  debts;  or, 
more  strictly,  that  it  had  tried  to  do  so,  and,  in  the  attempt,  had  lost  its 
lands  to  such  persons  as  were  in  a  position  to  take  advantage  of  the  oppor- 
tunities offered  them,  during  the  fifteen  years  in  which  the  process  was 
going  on,  to  win  gain  from  it.  It  is  not  impossible  that  here  and  there  a 
debtor  who  was  extraordinarily  shrewd  and  hard-headed  may  have  availed 
himself  of  the  relief  system  successfully,  but  the  number  of  such  must  have 
been  very  small.  In  all  the  cases  of  relief  attempted  by  big  paper  money 
machines  the  advantage  was  won  by  influential  individuals  who  got  the 
management  of  the  undertaking  into  their  hands  and  turned  it  to  their  own 
profit. 

It  may  be  said,  almost  without  limitation,  that  all  paper  money  issues 
and  stay  laws  for  the  relief  of  debtors  have  had,  as  their  sole  result,  to  curse 
debtors  with  life-long  poverty,  misery,  and  debt;  and  further,  that,  in  the 
history  of  this  country,  "relief"  has  been  the  word  of  the  most  direful  omen 
to  those-who-have-not  that  the  dictionary  contains. 


i 


I] 


♦28  Niles,   137. 


t  39  Niles,  463. 


X  Treasury  Report,  January  4,  1837,  163. 


%  Elliot's  Funding,  1 120. 


I40 


A  HISTORY  OF  BANKING. 


A  law  of  February  lo,  1845,  provided  for  an  audit  of  the  accounts  of  the 
president  of  the  Bank  of  the  Commonwealth,  and  he  was  called  on  to  report 
the  best  means  of  realizing  something  from  the  unavailable  debts  to  the  bank. 

The  agent  of  the  old  Bank  of  Kentucky  was  directed,  February  21,  1846, 
to  hand  over  all  the  papers  and  books  of  that  bank  to  the  first  Auditor,  with 
$28,209.74  cash  which  he  seems  to  have;  or  the  Attorney-general  is  ordered 
to  sue  him.  The  first  Auditor  is  to  audit  and  settle  the  accounts,  put  the 
money  in  the  Treasury,  and  draw  on  it  for  dividends  to  the  stockholders. 
He  is  to  carry  on  the  liquidation,  redeem  the  notes,  and  burn  them.  The 
president  of  the  Bank  of  the  Commonwealth  is  to  hand  over  all  papers  and 
money  to  the  first  Auditor,  who  is  to  audit  and  settle.  He  is  made  president 
of  both  banks,  and  the  Commissioners  of  the  Sinking  Fund  are  appointed 
directors  for  the  purposes  of  liquidation. 

Successive  acts  continuing  the  liquidation  of  the  old  Bank  of  Kentucky, 
the  independent  banks,  and  the  Bank  of  the  Commonwealth  were  passed 
every  few  years  until  the  civil  war.  In  1855,  commissioners  were  appointed 
to  find  out  the  facts  about  the  liquidation  of  the  first  mentioned,  since  1836, 
and  to  report  its  status  at  the  time  of  the  act.  It  was  characteristic  of  all 
banks  of  this  kind  that  their  liquidation  was  interminable. 

If  the  following  table  of  the  statistics  of  the  bank  note  circulation  of  Ken- 
tucky is  compared  with  the  above  history  it  will  be  found  that  the  fluctua- 
tions in  the  composition  and  total  amount  of  that  circulation  present 
phenomena  in  the  history  of  currency  more  interesting  and  instructive  than 
any  other  similar  data  which  can  be  found.  The  case  is  unique  for  the  study 
of  currency.  The  table  is  taken  from  the  document,  26  Cong,  i  Sess.  V  Exec. 
No.  172,  p.  1354.  The  figures  present  millions  and  decimals  thereof.  Vari- 
ations may  be  noticed  between  the  figures  here  given  and  some  which  occur 
above  and  which  are  taken  from  other  authorities.  All  statistics  of  that 
region  and  period  must  be  taken  with  some  latitude,  which,  however,  does 
not  affect  the  value  of  these  figures  for  purposes  of  illustration : 


^    1 


YEAR. 

Total. 

Bank  of 
Kentucky. 

Branches  of 
U.  S.  Bank. 

Bank 
Commonwealth. 

New  Bank  of 
Kentucky. 

I8IO 

I8II 

1812 

I813 

I814 • 

I815 

1816 

I817 

1818 

1819 

1820 

$0,124 
0.161 
0.289 
0.501 
0.576 
1.2 
1.9 

1-5 

1.9 

1.6* 
1-5 

1.2 
0.6 

1-3 

0.64 
0.63 
0.28 

*  Including  $400,000  allowed  for  the  independent  banks. 


LIQUIDATION  IN  THE  MISSISSIPPI  y ALLEY. 


141 


TABLE.— Continued. 


YEAR. 


Total. 


I82I 
1822 
1823 
1824 
182^ 
1826 
1827 
1828 
1829 
1830 
I83I 
1832 
1833 
1834 
1835 
1836 
1837 


$3-8 
3-5 
2.2 

2} 
1.5 
••3 
"•3 

••7 

2.8 

3-2 
3-7 
4-3 

3.8 

3-3 

5-7 
4.1 

3-4 


Bank  of 
Kentucky. 


1.2 

0.9 

0.48 

0.40 

O.  II 

0.083 

0.058 

0.041 

0.038 

0.033 

0.032 


Branches  of 
U.  S.  Bank. 


Bank 
Commonwealth. 


New  Bank  of 
Kentucky. 


0.20 

o.  19 

0.18 
0.18 

o.  17 
0.2s 
0.67 

"•3 
2.4 
2.8 

3-5 
4.1 

3-7 
2.9 

3-> 


2.4 

2.3 

>-7 

I.? 

0.9 

0.6 

0.3 

0.3 

0.3 

0.2 

0.13 

o.  10 

0.05 


0.3 
2.6 
4-< 
3-4 


It  seems  best  to  introduce  here  a  notice  of  the  litigation  which  arose  in 
connection  with  the  Bank  of  the  Commonwealth  and  bills  of  credit,  although 
we  shall  be  compelled,  in  so  doing,  to  anticipate  several  years.  The  decision 
in  Briscoe's  case  fell  in  the  midst  of  important  events  which  have  not  yet 
been  narrated,  and  it  is  an  especially  important  fact  in  regard  to  it  that  it  was 
not  rendered  until  several  States  had  been  committed  to  the  great  Bank  of  the 
State  policy  beyond  what  would  appear  from  our  history  so  far  as  it  has  yet 
advanced. 

In  the  Bank  of  the  Commonwealth  of  Kentucky  vs.  Wistar  et  al.  (1829)* 
the  Supreme  Court  of  the  United  States  held  that  the  bank  must  pay  specie 
on  demand  in  return  for  a  deposit  which  had  been  made  with  it  of  its  own 
notes,  although  these  notes  were,  when  deposited,  worth  only  50  cents  on 
$1.  It  had  been  provided  in  the  act  establishing  the  bank  that  it  should  pay 
specie.  The  bank  tried  to  plead  the  non-suability  of  a  State,  but  it  was  held 
that  if  the  State  was  the  sole  owner  of  the  bank,  and  issued  as  a  sovereign,  it 
would  be  non-suable;  then,  however,  the  notes  would  be  bills  of  credit.  If 
the  State  issued  as  a  banker,  not  a  sovereign,  then  it  was  suable  under  the 
decision  in  the  case  of  the  Bank  of  the  United  States  vs.  the  Planters'  Bank  of 
Georgia. 

In  Craig  vs.  Missouri  (1830)!  the  law  of  Missouri  of  182 1  establishing  loan 
offices!  was  declared  unconstitutional  with  respect  to  the  notes  issued,  which 
were  bills  of  credit.     It  was  held  that  "to  emit  bills  of  credit  conveys  to  the 


I 


W 


I5 


*  a  Peters,  ?i8. 


t  4  Peters,  410. 


%  See  page  iCi. 


142 


A  HISTORY  OF  BANKING. 


1    . 


,1    •:      l" 


\ 


mind  the  idea  of  issuing  paper  intended  to  circulate  through  the  community 
for  its  ordinary  purposes  as  money ;  which  paper  is  redeemable  at  a  future 
day."  "If  the  prohibition  means  anything,  if  the  words  are  not  empty 
sounds,  it  must  comprehend  the  emission  of  any  paper  medium  by  a  State 
government  for  the  purposes  of  common  circulation."  Bills  of  credit  and 
legal  tender  laws  were  declared  to  be  the  objects  of  two  separate  and 
independent  prohibitions. 

The  case,  however,  through  which  the  Bank  of  the  Commonwealth  of 
Kentucky  obtained  national  importance  and  effected  the  whole  law  of  bank- 
ing in  this  country  was  that  of  Briscoe  vs.  the  Bank  of  the  Commonwealth  of 
Kentucky.*  Briscoe  and  others  gave  a  note  in  1850  which  they  did  not  pay 
at  maturity.  In  the  State  Circuit  Court  Briscoe  pleaded  "  no  consideration," 
on  the  ground  that  the  note  was  given  for  a  loan  of  notes  of  the  Bank  of  the 
Commonwealth,  which  were  "bills  of  credit"  within  the  prohibition  of  the 
Constitution  and  therefore  of  no  value.  The  State  Court  found  for  the  bank. 
The  Supreme  Court  of  the  State  had  held,  in  1822,  that, — no  consideration 
because  bills  of  credit, — was  not  a  good  defense  on  a  suit.f  The  State  Court 
of  Appeals  affirmed  the  decision  in  Briscoe's  case.  The  case  was  carried  to 
the  Supreme  Court  of  the  United  States  on  a  writ  of  error.  Two  of  the 
seven  judges  were  absent  in  1834.  Of  the  five  who  heard  the  argument  in 
Briscoe's  case,  three  thought  that  the  notes  of  the  Bank  of  the  Common- 
wealth were  bills  of  credit  under  the  decision  in  Craig  vs.  Missouri ;  but  there 
was  not  a  majority  of  the  whole  Court  who  concurred  in  this  opinion.  The 
rule  of  the  Court  was  not  to  pronounce  a  State  law  invalid  for  unconstitu- 
tionality unless  a  majority  of  the  whole  Court  should  concur;  hence  no 
decision  was  rendered. 

The  Circuit  Court  of  Mercer  County,  Kentucky,  decided,  in  1834,  under 
the  decision  in  Craig  vs.  Missouri,  that  the  notes  of  the  Bank  of  the  Common- 
wealth were  bills  of  credit.  J 

Judge  Johnson  died  in  1834.  Duvall  resigned  in  January,  1835.  Wayne 
took  his  seat  January  14th,  1835. §  Hence  there  was  one  vacancy  in  1835  and 
Briscoe's  case  went  over,  Marshall  died  July  6th,  1835.  In  1836  there  were 
only  five  Judges  on  the  bench  of  the  Court.  Taney  was  confirmed  March 
15th,  1836,  as  Chief  Justice,  and  P.  P.  Barbour||  was  confirmed  the  same  day. 
This  made  the  Court  complete  again.  Five  of  the  seven  Judges  were  now 
Jackson's  appointees. 

Briscoe's  case  was  decided  in  January,  1837.  The  decision  was  by 
McLean,  who  had  dissented  in  Craig  vs.  Missouri.  It  was  held  that  a  bill  of 
credit  "  is  a  paper  issued  by  the  sovereign  power  containing  a  pledge  of  its 
faith  and  designed  to  circulate  as  money."  "The  act  incorporating  the 
Bank  of  the  Commonwealth  was  a  constitutional  exercise  of  power,  by  the 
State  of  Kentucky,  and  the  notes  issued  by  the  bank  are  not  bills  of  credit, 
within  the  meaning  of  the  Constitution  of  the  United  States."    It  is  said  to 


*  8  Peters,  1 18.  t  2  Llttell,  3)J. 

%  See  Wayne's  comments  on  Jackson's  Message  of  1830,  page  199. 


%  46  NUes,  a  10.    See  p.  125  above. 
B  Seepage  191. 


n 


LIQUIDATION  IN  THE  MISSISSIPPI  y ALLEY. 


'4,3 


be  very  difficult  to  define  bills  of  credit,  as  the  term  is  used  in  the  Constitu- 
tion, "in  the  early  history  of  banks,  it  seems  that  their  notes  were  gener- 
ally denominated  'bills  of  credit.'"  A  bill  of  credit  "which  includes  all 
classes  of  bills  of  credit  emitted  by  the  colonies  and  States,  is  a  paper  issued 
by  the  sovereign  power,  containing  a  pledge  of  its  faith,  and  designed  to 
circulate  as  money."  It  would  be  unconstitutional  for  a  State  to  make  any 
bank  notes  legal  tender.  "A  State  cannot  emit  bills  of  credit,  or,  in  other 
words,  it  cannot  issue  that  description  of  paper  to  answer  the  purposes  of 
money,  which  was  denominated  before  the  adoption  of  the  Constitution 
bills  of  credit;  but  a  State  may  grant  acts  of  Incorporation  for  the  attainment 
of  those  objects  which  are  essential  to  the  interests  of  society.  This  power 
is  incident  to  sovereignty,  and  there  is  no  limitation  on  its  exercise  by  the 
States,  in  respect  to  the  incorporation  of  banks,  in  the  Constitution."  Refer- 
ence is  made  to  the  Bank  of  North  America  and  the  Bank  of  Massachusetts, 
as  existing  when  the  Constitution  was  adopted,  and  it  is  inferred  that  bills 
of  credit  "do  not  include  ordinary  bank  notes."  Then  "it  follows  that  the 
power  to  incorporate  banks  to  issue  these  notes  may  be  exercised  by  a 
State."  A  State  could  not  incorporate  a  company  to  coin,  because  it  is  for- 
bidden to  do  so  itself;  nor  could  it  incorporate  a  company  to  issue  bills  of 
credit.  "  To  constitute  a  bill  of  credit  within  the  Constitution,  it  must  be 
issued  by  a  State,  on  the  faith  of  the  State,  and  designed  to  circulate  as  money. 
It  must  be  a  paper  which  circulates  on  the  credit  of  the  State,  and  so  received 
and  used  in  the  ordinary  business  of  life.  The  individual  or  committee  who 
issue  it  must  have  power  to  bind  the  State.  They  must  act  as  agents,  and 
of  course  not  incur  any  personal  responsibility,  nor  impart,  as  individuals, 
any  credit  to  the  paper.  These  are  the  leading  characteristics  of  a  bill  of 
credit,  which  a  State  cannot  emit.  The  notes  issued  by  the  Bank  of  the 
Commonwealth  of  Kentucky  have  not  these  characteristics." 

Story  rendered  a  very  strong  and  vehement  dissenting  opinion.  In  it  he 
gave  a  summary  history  and  analysis  of  "bills  of  credit,"  as  they  existed 
before  the  Revolution,  and  as  they  were  understood  by  the  Constitution- 
makers,  and  he  showed  what  a  great  variety  of  them  there  had  been  in  the 
use  of  the  colonists  from  whom  the  expression  was  inherited.  These  notes  of 
the  Kentucky  bank  were,  he  said,  fully  under  the  description.  "The  history 
of  such  a  currency  constituted  the  darkest  pages  in  the  American  annals,  and 
had  been  written  in  the  ruin  of  thousands  who  had  staked  their  property 
upon  the  public  faith, — always  freely  given,  but  too  often  grossly  violated," 
"It  is  the  substance  we  are  to  look  to.  The  question  is  whether  it  is 
issued^  and  is  negotiable,  and  is  designed  to  circulate  as  currency.  If  that 
is  its  intent,  manifested  either  on  the  face  of  the  bill,  or  on  the  face  of  the 
f  ct,  and  it  is  in  reality  the  paper  issue  of  a  State,  it  is  within  the  prohibition 
of  the  Constitution."  He  explicitly  referred  to  the  former  hearing  of  the  case 
and  said  that  Marshall  had  been  in  the  majority  against  the  constitutionality 
of  the  issues.* 

•  1 1  Peters,  348. 


'       ' 


».  t 


•I 


w\ 


iC,t  I 


t  'I 


"  . 


I  ■Its; 


.If 


'i\m 


i^n 


I 


i.ii 


% 


144 


A  HISTORY  OF  BANKING. 


n 


In  a  philippic  against  Guthrie,  in  the  Senate  of  Kentucky,  in  1838, 
Wickliffe  charged  him  with  belonging  to  a  party  who  once  issued 
$j,ooo,ooo  in  bills  of  credit  without  a  dollar  to  redeem  them  with.  "  And  it 
is  equally  true  that  a  portion  of  his  party  raised  a  pony  purse  and  promised 
great  lawyers  $50,000  to  have  their  acts  declared  unconstitutional  and  void 
by  the  Supreme  Court,  that  they  might  be  thereby  released  from  paying  their 
debts  to  this  Commonwealth's  bank." 

The  decision  in  this  case  was  a  distinct  victory  for  Kentucky  relief  bank- 
ing and  politics.  It  opened  the  door  wide  for  abuses  of  banking  by  the 
States.  If  the  degree  of  responsibility  and  independent  authority  which  the 
directors  of  the  Bank  of  the  Commonwealth  of  Kentucky  possessed  (which 
was  really  nil),  and  the  amount  of  credit  which  they  gave  to  the  notes,  aside 
from  the  credit  of  the  State,  was  sufficient  to  put  those  notes  outside  the 
prohibition  of  the  Constitution,  then  no  State  could  find  any  difficulty  in 
making  a  device  for  escaping  the  constitutional  prohibition  of  bills  of  credit. 
Wildcat  banking  was  granted  standing  ground  under  the  Constitution,  and 
the  boast  that  the  constitutional  convention  had  closed  and  barred  the  door 
against  the  paper  money  with  which  the  colonies  had  been  cursed,  was 
without  foundation. 

We  have  seen,  however,  that  this  institution  was  only  a  caricature  of  a 
bank  in  any  point  of  view.  The  great  Banks  of  the  States  were  financially 
unsound  and  mistaken,  but  this  is  the  only  one  which  deserved  to  be  char- 
acterized as  a  shameless  fraud.  It  was  devised  only  to  wipe  out  debts. 
Its  pretenses  were  all  transparently  false.  The  Court  was  obliged  to  hold 
aloof  from  a  real  examination  of  it  and  to  accept  all  its  false  pretenses  with 
remote  and  artificial  respect,  lest  a  close  and  faithful  investigation  should 
reveal  its  rottenness  in  such  a  light  that  it  would  have  been  impossible  to 
let  it  stand.  A  whole  series  of  decisions  has  been  built  upon  this  case  and 
it  has  contributed  to  fasten  on  the  country  the  federal  legal  tender  law. 
It  would  be  worth  the  trouble,  on  proper  occasion,  to  trace  through  the 
cases  derived  from  it,  and  decided  upon  it,  with  reference  to  the  mischievous 
consequences  which  have  flowed  from  it. 

It  is  very  true  that  the  definition  of  bills  of  credit  is  extremely  difficult. 
No  analytical  definition  has  ever  been  made,  which  is  satisfactory.  In  fact 
the  Court  in  this  decision  labored  inconclusively  with  the  analysis,  and 
satisfied  itself  with  an  historical  definition.  Its  statement  amounts  to  saying 
that  whatever  the  Constitution-makers  meant  by  bills  of  credit  is  unconstitu- 
tional. Now  it  is  entirely  beyond  question  that  the  antipathy  of  the  Constitu 
tion-makers  did  not  attach  to  the  fact  that  those  bills  were  issued  b\-  '  ' 
State,  but  to  their  nature  and  operation  as  currency.  Their  antipathy 
equally  great  against  Continental  bills  of  credit,  issued  by  the  Confederal  ., 
for  the  same  reason;  and  the  notes  of  the  Bank  of  North  America  and  of  the 
Bank  of  Massachusetts  did  not  come  under  this  hostile  intention  because 
they  were  regarded  as  credit  instruments  of  a  different  character.  The  term 
bill  of  credit,  according  to  its  history,  was  generic  and  not  specific.     It  meant 


I  r 


LIQUIDATION  IN  THE  MISSISSIPPI  i^ ALLEY. 


14^ 


any  current  evidence  of  an  obligation.  The  Colonies  and  Congress  had 
issued  them  under  a  great  variety  of  forms  and  of  varying  tenor,  until  they 
carried  no  language  which  expressed  any  legal  character  at  all.  "This  bill 
shall  be  current  for  one  shilling."  "One  dollar,  by  resolution  of  Congress." 
Even  the  obligation  of  the  issuer  was  only  assumed  and  understood.  If  a 
member  of  the  Constitutional  convention  had  been  asked  why  he  wanted  to 
forbid  them,  he  would  have  answered  that  it  was  because  experience  had 
shown  that  they  displaced  specie;  became  the  money  of  account;  were  In 
fact  forced  on  everybody's  acceptance,  as  the  only  medium  of  exchange; 
were  liable  to  political  control;  in  short,  that  they  usurped  the  functions  of 
money  and  belied  every  one  of  those  functions  so  that  there  was  no  money. 
The  people  lacked  all  the  utilities  of  money  and  suffered  instead  from  a 
political  and  commercial  curse.  He  would  have  said  that  if  bills  of  credit 
bore  interest,  they  would  not  circulate.  Hence  the  prohibition  did  not  touch 
State  bonds,  and  that,  if  they  were  cash  specie  obligations  lor  value  promptly 
enforceable  at  law,  all  their  evil  features  would  disappear.  He  would  have 
said  that  bank  notes  were  of  the  latter  character.  The  history  of  the  follow- 
ing fifty  years  showed  that  the  Constitution-makers  placed  too  much  con- 
fidence in  this  latter  distinction.  Unless  the  cash  specie  obligation,  promptly 
enforceable  at  law,  was  an  established  actuality  in  the  fullest  sense  of  the 
words,  the  bank  notes  reproduced  all  the  evils  of  the  colonial  bills  of  credit. 
The  discriminations,  therefore,  presented  by  Briscoe's  case  were  not  really 
difficult.  The  distinction  between  a  legitimate  bank  note  and  one  which 
had  degenerated  into  the  form  of  a  colonial  bill  of  credit  was  not  difficult, 
and  it  would  have  been  an  immeasurable  benefit  to  the  country  to  have  had 
that  distinction  then  defined  and  established.  A  State  which  was  creating 
institutions  which  were  issuing  notes  of  the  former  kind  would  have  been 
within  the  Constitution ;  one  which  was  creating  banks  whose  notes  were  of 
the  latter  kind  would  have  been  outside  of  it. 

in  a  report  on  the  "Exchequer,"  at  the  session  of  1841-2,  Caleb  Cushing 
said:  "It  seems  to  be  a  strange  anomaly  of  the  fundamental  law;  or  if  not 
anomaly,  then  oversight,  to  provide  that  a  State  shall  not  issue  bills  of  credit 
by  the  Instrumentality  of  a  natural  person  called  its  '  Treasurer, '  but  may, 
by  means  of  a  legal  person  called  its  '  bank ;'  in  other  words,  that  it  cannot, 
and  yet  that  it  can,  be  the  derivative  source  of  the  issue  of  bills  of  credit. 
Nor  does  it  vary  the  principle  to  enact  that  the  bank  shall  consist  in  part  or 
in  whole  of  incorporated  private  stock." 

In  his  annual  report  for  1861,  Secretary  Chase  said  that  emissions  of 
bank  notes  by  State  banks  "certainly  fall  within  the  spirit  if  not  within  the 
letter  of  the  constitutional  prohibition  of  the  emission  of  bills  of  credit  by  the 
States." 

Our  history  has  shown  that  there  were,  at  the  time  of  this  discussion,  a 

number  of  large  Banks  of  the  States,  in  regard  to  which  the  State  feeling 

was  V     '  strong;  and  also  that  the  passions  which  had  been  enlisted  on 

behalf  of  the  Bank  of  the  Commonwealth,    in  Kentucky,  were  intense.     It 

10 


:>    '■ 


It   '  ' 


m 


li 


146 


A  HISTORY  OF  BANKING. 


m 


will  appear  below  that  the  State  interest  in  these  institutions  before  1837 
had  been  very  much  extended.  In  the  party  politics  of  the  time  it  was  very 
important  to  make  a  decision  which  should  be  popular  in  Kentucky  (Clay's 
State),  and  also  in  the  other  States  which  were  interested  in  Banks  of  the  State. 
It  seems  safe  lO  say  that  political  considerations  entered  largely  into  the 
decision;  but  it  is  also  true  that  the  ednrational  effect  which  the  current 
banking  system  exerted  on  the  minds  of  the  people  was  discernible  on  the 
Bench.  As  the  Court  was  now  strongly  Jacksonian,  it  was  a  remarkable 
anomaly  that  they  should  have  declared  the  Bank  of  the  Commonwealth  of 
Kentucky  constitutional,  when  their  party  was  assailing  the  Bank  of  the 
United  States,  on  !lie  ground  that  it  was  unconstitutional. 

The  law,  so  far  as  the  Constitution  of  the  United  States  prescribed  it,  was 
now  decided  to  be  that  States  alone,  in  the  strictest  sense,  may  not  issue 
bills  of  credit.  The  United  States  may ;  banks,  municipalities,  associations, 
and  individuals  may. 

We  may  now  turn  our  attention  to  the  measures  of  liquidation  and  relief 
adopted  by  the  other  States  of  the  Mississippi  Valley  at  this  time. 

Tennessee,  fearing  the  oppression  which  Kentucky  v/as  suffering  from 
the  Bank  of  the  United  States,  laid  a  tax  of  $50,000,  in  1817,  on  any  one 
who  should  engage  iii  banking  in  the  State  without  the  authority  of  the 
same.  In  the  followinjj  year  a  petition  was  addressed  to  the  Bank  of  the 
United  States  by  citizens  of  Nashville,  asking  it  to  establish  a  branch  in  spite 
of  the  law.  The  reply  was  that  the  Bank  had  ample  occupation  for  all  its 
capital,  and  that  it  could  more  conveniently  test  the  right  of  a  State  to  tax  it 
elsewhere.* 

The  banks  of  this  State  stopped  payment  in  18 19.  Although  there  was 
no  otfice  of  the  Bank  of  the  United  States  in  the  State,  the  banks  made  use 
of  the  current  excuse  for  suspension  and  attributed  it  to  emissaries  of  the 
Bank.f  No  doubt  it  had  transactions  there.  Senator  White  said  that  the 
people  of  that  State  had  never  been  accustomed  to  the  punctuality  which  the 
great  Bank  enforced.  Thirty  years  later  it  was  said  of  them :  "Although  the 
planters  are  the  safest  and  most  infallibly  solvent  class  of  customers,  it  is 
impossible  to  induce  them  to  observe  punctuality." 

An  extra  session  of  the  Legislature  was  called  in  June,  1820,  on  account  of 
the  distress.  The  Governor  recommended  a  property  law,  saying  that  his 
observation  of  that  of  1809,!  had  led  him  to  believe  that  such  a  law,  although 
to  be  used  carefully,  might  be  very  beneficial. 

In  compliance  with  these  recommendations,  the  Bank  of  the  State  of 
Tennessee  (No.  II.)  was  incorporated  July  26,  1820,  "for  the  purpose  of 
relieving  the  distresses  of  the  community  and  improving  the  revenue  of 
the  State."  It  was  to  be  established  "for  and  in  behalf  of  the  State  of  Ten- 
nessee."   Its  seat  was  to  be  at  Nashville,  with  a  branch  at  Knoxville  to 

•  4  Folio  Finance.  835. 

t  16  Niles,  34' • 

tThtpUtntiff  might  uke  the  property  at  two-thirds  of  a  valuation,  or  it  was  sold  on  a  credit  of  one  year. 


LIQ.UIDATION  IN  THE  MISSISSIPPI  P^ ALLEY. 


'47 


of 
of 
of 

en- 
;to 


which  four-tenths  of  the  capital  was  appropriated.  The  president  and 
directors  were  to  be  elected  by  joint  ballot  of  the  Legislature  from  session  to 
session.  It  was  to  last  until  1843,  to  issue  notes  from  $1  to  $100.  Its  cap- 
ital was  to  be  $1  million  "in  bills  payable  to  order  or  bearer,  all  of  which 
shall  be  emitted  on  the  credit  and  security  of  the  borrowers,  and  the  whole 
be  warranted  by  the  State,"  on  the  income  from  sales  of  land  "and  the  ordinary 
revenue  of  the  State,  not  otherwise  appropriated."  It  was  to  be  a  deposi- 
tory of  public  money.  Loans  were  to  be  secured  by  bills  and  notes  with 
two  or  more  sureties,  or  by  mortgage,  and  not  to  be  made  for  more  than 
one  year.  No  loan  might  be  renewed  unless  interest  was  paid  in  advance, 
and  not  more  than  one-tenth  of  any  loan  might  be  called  in  when  it  was 
due,  without  sixty  days'  notice.  In  case  of  default,  judgment  and  execu- 
tion were  to  follow.  The  bank  was  not  to  owe  over  $1  million  before  the 
next  session.  Within  twenty  days  after  it  was  ready  to  start,  an  agent  to 
make  the  loans  was  to  be  appointed  in  each  county.  The  notes  were 
receivable  for  all  dues  to  the  State,  to  colleges,  and  academies,  on  account 
of  the  public  lands,  and  on  account  of  such  lands  as  had  been  appropriated 
to  the  educational  institutions  mentioned.  In  the  midst  of  this  act  it  is 
provided  that  no  executions  shall  take  place  within  two  years  after  judg- 
ment, unless  the  writ  is  endorsed  that  the  notes  of  this  bank  will  be  received 
as  well  as  the  other  notes  mentioned  in  previous  laws.  The  loans  were  to 
be  allotted  to  the  counties  in  proportion  to  the  State  tax  of  1819.  All  sums 
paid  in  were  to  be  re-loaned  in  the  same  county.  The  Treasurer  of  East 
Tennessee  was  to  issue  six  per  cent,  stock  at  the  request  of  the  president  of 
this  bank,  "on  the  faith  and  credit  of  the  funds  vested  in  said  bank  by  this 
act"  up  to  the  maximum  amount  of  $87,500.  The  Treasurer  of  West 
Tennessee  was  to  do  the  same  up  to  the  amount  of  $162,500.  The  bank 
was  to  pay  the  interest  on  these  bonds  and  sell  therni  from  time  to  time  at 
par.  Here  was  a  provision  which  provided  for  touching  some  capital  at 
last.  No  loan  was  to  be  over  $500;  the  Legislature  was  to  make  rules  for 
the  bank.  The  Nashville  Bank  or  the  previous  Bank  of  the  State  might 
consolidate  with  this.  A  supplementary  act,  three  days  later,  pledged  to 
the  bank  the  revenue  from  the  State  lands  to  make  up  its  capital.  As  there 
had  been  some  difficulty  to  find  any  one  to  take  the  offices,  it  was  provided 
that,  if  no  suitable  persons  in  Knoxville  would  accept  the  positions,  the  bank 
might  be  set  up  elsewhere  in  East  Tennessee.  The  Treasurer  of  West  Ten- 
nessee was  to  furnish  money  to  buy  the  plates,  etc.  The  bank  was  to  com- 
mence by  issuing  $500,000.  The  notes  were  not  to  be  in  e.xcess  of  twice 
the  paid  in  capital.  The  power  of  the  Legislature  to  make  rules  for  the 
bank  was  repealed.  This  act,  like  the  others  creating  the  big  Banks  of  the 
States,  contained  obvious  incongruities.  The  old  Bank  of  the  State  of  Ten- 
nessee would  have  nothing  to  do  with  this  new  one.* 

This  act  was  passed  in  the  Senate,   13  to  7;  in  the   House,  20  to  19. 


M 


•  Senator  White's  Spwch,  March  14,  1838. 


148 


A  HISTORY  OF  BANKING. 


*"'  i  i 


I    ! 


r   i 


There  was  very  strong  opposition  to  it.  General  Jackson,  Colonel  Ward, 
and  others  of  Davidson  County,  presented  a  remonstrance  against  it.  The 
memorialists  object  to  the  bank  bill  as  unconstitutional  and  inexpedient. 
They  object  to  the  two  years'  delay,  quoting  the  bill  of  rights  that  "right 
and  justice  shall  be  administered  without  sale,  denial,  or  delay ;"  also  to  the 
provision  which  makes  the  "loan  office  notes  a  direct  tender  in  discharge  of 
debts  due  to  colleges  and  academies  from  our  citizens  south  of  Holston  and 
French  Broad."  As  to  the  "policy  of  passing  the  bill  under  consideration, 
the  undersigned  believe  that  no  one  can  hesitate  to  pronounce  it  ruinous  of 
both  public  and  private  interests  who  will  give  it  a  careful  and  impartial 
investigation."  They  do  not  think  the  distress  so  severe  as  to  justify  thir> 
kind  of  interposition  on  the  part  of  the  Legislature.  Paper  notes  cannot 
relieve  the  distress,  because  they  have  no  solid  basis.  "It  has  heretofore 
been  admitted  by  every  judicious  political  economist  who  has  devoted  his 
attention  to  the  subject  that  the  large  emissions  of  p..per  from  the  banks  by 
which  the  country  was  inundated  have  been  the  most  prominent  causes  of 
those  distresses  of  which  we  at  present  complain.  They  greatly  increased 
the  facilities  of  borrowing  money,  gave  property  a  fictitious  value,  and  intro- 
duced amongst  us  every  species  of  extravagance  and  folly."  "It  would 
appear  to  the  undersigned  that  the  poison  which  generated  the  disease  is 
here  attempted  to  be  administered  for  its  removal."  They  also  made  a 
special  objection  to  any  arrangement  by  which  citizens  of  the  State  would 
become  debtors  to  the  State  and  referred  to  the  debts  already  due  from  pur- 
chasers of  State  lands  as  an  illustration  and  warning.  "The  undersigned 
feel  no  small  share  of  surprise  that  so  much  sympathy  should  be  indulged 
for  the  debtor  and  none  for  the  creditor.  Although  there  may  be  some 
extreme  cases  that  solicit  relief,  yet  it  is  suggested  as  the  best  policy  to 
keep  the  courts  of  justice  open  and  accessible  to  every  citizen,  and  permit 
those  who  are  involved  to  extricate  themselves  by  additional  industry  and 
economy."  They  end  by  citing  the  oath  taken  by  members  of  the  Legisla- 
ture and  declare  that  this  measure  is  a  violation  of  that  oath. 

This  memorial  was  laid  upon  the  table  in  the  Senate  1 1  to  5,  and  two 
members  claimed  the  right  to  spread  upon  the  record  their  reasons  for 
voting  to  lay  it  on  the  table.  They  cite  the  passage  about  the  oaths  of  the 
members  as  a  ground  for  declaring  that  the  memorial  "is  extremely  excep- 
tionable and  indecorous  in  its  terms  and  language."  They  add  that  "one 
of  the  distinguished  characters  who  appears  to  have  been  actively  zealous  in 
producing  the  above  memorial,  but  a  few  days  since,  at  the  seat  of  govern- 
ment, and  in  the  presence  of  some  members  of  the  Legislature,  in  the  most 
indecorous  manner  stated  that  any  member  who  voted  for  it  would  perjure 
himself,  and  that  if  the  law  did  pass,  twelve  honest  jurymen  upon  oath 
would  convict  those  who  voted  for  the  measure  of  perjury." 

Although  the  adjuration  to  the  Legislature  to  heed  their  oath  is  very 
pointed,  and  would  not  probably  be  put  into  a  similar  paper  nowadays, 
there  is  nothing  in  the  paper  which  is  indecorous  in  substance  or  manner. 


^.•11 


LIQUIDATION  IN  THE  MISSISSIPPI  l^ ALLEY. 


149 


F 
is. 


October  24th,  the  grand  jury  of  Davidson  County  begged  leave  to  pre- 
sent their  opinion  in  condemnation  of  the  action  of  the  two  old  banks  in 
opposing  the  new  Bank  of  the  State,  which  has  a  strong  capital  and  all 
safeguards.  "  Those  banks  ought  to  recollect  that  they  exist  by  legislative 
aid  and  permission.  They  are  barely  tolerated  by  the  people  whose  breath 
can  annihilate  them  in  an  instant.  They  surely  forget  on  what  a  precipice 
they  stand."* 

In  May,  1821,  the  Supreme  Court  of  the  State  had  occasion  to  pass  upon 
the  stay  law.f  The  clerk  of  the  Supreme  Court  of  the  second  circuit  had 
been  requested  to  issue  an  execution  on  a  judgment  rendered  in  the 
Supreme  Court,  without  the  endorsement  required  by  the  act  of  1819.  He 
refused  to  do  so.  The  Court  was  moved  to  order  him  to  grant  the  execu- 
tion, disregarding  the  endorsement  law  as  unconstitutional.  The  Court 
said:  "Suspension  of  execution,  as  directed  by  these  acts  of  the  Legislature 
now  under  consideration,  is  forbidden  by  the  prohibition  of  tender  laws  as  a 
direct  consequence  of  the  prohibition ;  also  by  the  interdiction  to  pass  laws 
impairing  the  obligation  of  contracts  (suspension  of  execution  being  an 
impairing  of  such  obligation);  and  furthermoreby  the  declaration  that  justice 
and  right  shall  be  done  without  delay  in  all  rases,  the  process  of  execution 
being  one  sense  of  the  term  'right'  which  is  not  to  be  delayed.  We  are 
therefore  bound  to  say  that  these  acts  are  repugnant  to  the  Constitution  and 
void  so  far  as  relates  to  the  suspension  of  execution,  and  that  execution 
ought  to  issue  immediately  without  any  such  endorsement  as  the  act 
requires." 

Judge  Haywood,  who  read  the  decision,  went  on  to  urge  at  length  that 
injunctions  should  issue  against  creditors  who  demanded  payment  in  specie 
for  debts  contracted  in  paper.  Judge  Emmerson,  who  joined  with  him  in  the 
decision,  as  above,  dissented  on  this  point  on  grounds  not  stated.  Final 
decision  on  this  point  (which  was,  as  the  Judge  declared,  not  before  the 
Court)  was  reserved  until  the  third  judge,  Whyte,  could  decide  it.  It  seems 
that  the  presiding  Judge  must  have  brought  it  in  only  as  some  consolation 
to  those  who  supported  the  endorsement  system.  There  seems  to  have 
been  peaceful  acquiescence  in  this  decision  in  Tennessee  and  the  relief  system 
there  came  to  an  end. 

The  Bank  of  the  State  of  Tennessee  was  far  more  moderate  in  its  issues 
than  the  Bank  of  the  Commonwealth  of  Kentucky,  and  the  evils  which  were 
occasioned  by  it  were  by  no  means  so  serious. 

In  1821-2,  legislation  is  aimed  against  the  banks.  The  act  of  November 
13,  182 1,  forbade  any  bank  to  sell  its  specie  stock;  the  penalty  for  the  presi- 
dent was  $1,000  fine  and  imprisonment  not  exceeding  five  years.  The 
banks  were  ordered  to  resume  on  the  first  Monday  in  April,  1824,  or  forfeit 
their  charters,  except  the  Bank  of  the  State  of  Tennessee.  They  were 
ordered  to  settle  accounts  with  each  other  every  three  months.     November 


•  19  Niles,  183. 


t  Townsendrs.  Townsend,  i  Peck,  i. 


'\    iiltl 


a   \' 


't  v| 


li'  ' 


I50 


A  HISTORY  OF  BANKING. 


V    i 


15th,  a  law  was  passed  to  give  the  holders  of  notes  for  less  than  $100  an 
execution  against  the  bank,  with  a  process  for  discovering  its  property  and 
garnishment  against  the  debtors  of  the  bank.  On  the  same  day  the  Bank 
of  the  State  was  authorized  to  issue  $50,000  in  notes  under  $1,  to  be  dis- 
tributed amongst  the  counties  in  the  ratio  in  which  the  large  notes  were  dis- 
tributed. November  8,  1823,  the  same  bank  was  authorized  to  issue 
$25,000  in  notes  for  50  cents  and  less.  The  smallest  denomination  men- 
tioned is  six  and  a  quarter  cents.  November  27th  the  resumption  law  was 
repealed,  and  the  banks  were  ordered  to  pay  in  specie  one-quarter  of  each 
note  presented  between  April,  1824,  and  January,  1825;  one-third,  between 
January,  1825,  and  October,  1825;  one-half  between  that  date  and  July, 
1826;  and  after  that,  the  whole.  If  the  State  Bank  at  Knoxville  or  the 
Nashville  Bank  do  not  pay  specie,  they  shall  be  liable  to  six  per  cent, 
damages  for  ^lelay,  unless  they  agree  to  the  conditions  of  this  act  about 
resumption. 

October  23,  1S23,  a  new  stay  law  was  passed.  Executions  were  to  be 
endorsed  according  to  the  existing  law.  If  the  creditor  did  not  do  this,  three 
valuers  were  to  be  selected  from  the  neighboring  householders.  If  the 
property  did  not  sell  for  three-quarters  of  the  valuation,  it  was  to  be  returned 
to  the  defendant.  The  plaintiff  might  then  sue  out  another  execution.  The 
plaintiff  may  take  slaves  at  three-quarters  of  their  value,  or  they  are  to  be 
returned  to  the  defendant;  so  of  land.  This  law  is  not  to  apply  to  specific 
contracts  for  specie  or  eastern  funds,  nor  to  cases  where  a  bank  is  the 
defendant,  nor  to  contracts  made  after  April  i,  1823.  It  is  not  known  that 
this  law  ever  was  tested,  but  the  relief  system  in  Tennessee  is  said  to  have 
declined  even  before  this  time,  as  above  stated. 

The  following  year  we  find  the  Bank  of  the  State  in  full  operation;  new 
agencies  are  appointed  in  the  new  counties.  December  3,  1825,  it  was 
enacted  that  upon  application  of  any  person,  with  security,  to  the  agent  of 
his  county,  it  shall  be  the  duty  of  the  agent  to  lend  from  $io  to  $500  from 
any  money  he  has.  When  a  note  is  reduced  to  $50  by  payments,  it  shall 
not  be  lawful  for  the  agent  to  demand  the  remainder  in  one  payment,  but  in 
fractions,  as  before.  In  that  year  the  Governor  congratulated  the  State  on 
the  prospect  of  resumption.  The  premium  on  silver  had  fallen  in  a  year 
from  25  to  4  or  5.  "The  earnest  prayer  of  all  should  be  that  we  may  never 
again  experience  the  evils  of  depreciated  bank  paper."  He  was  confident 
that  the  managers  of  the  banks  were  striving  to  resume.  In  1826,  the 
Nashville  Bank  did  resume,  but  $260,000  were  >.! 'awn  from  it  in  seventy  days 
and  it  failed  again,  leaving  only  the  Bank  of  the  ;ate.  December  i  ith  a  law 
was  passed  in  regard  to  the  Nashville  Bank  which  is  so  carelessly  drawn 
that  it  is  scarcely  intelligible.  The  sense  appears  to  be  that,  in  order  to 
prevent  a  depreciation  of  its  notes,  they  are  made  receivable  for  State  and 
college  lands,  if  the  college  trustees  agree,  and  the  Bank  of  the  State  is  to 
take  them  for  one-half  its  loans  called  in.     The  notes  of  the  Nashville  Bank, 


LIQUIDA  TION  IN  THE  MISSISSIPPI  l^ALLEY. 


>5' 


however,  fell  at  once  to  fifty  per  cent,  discount,  and  so  remained  until  1833, 
when  they  were  quoted  at  ten  per  cent.* 

The  law  which  had  barred  out  the  Bank  of  the  United  States  was  repealed 
in  1826,  and  a  branch  was  established  at  Nashville. 

In  1827,  the  avails  of  the  Bank  of  the  State  were  constituted  a  school  fund. 
A  peculiar  feature  of  the  history  of  Tennessee  was  the  excessive  degree  to 
which  the  educational  organization  of  the  State  was  entangled  with  its 
banking,  which  also  involved  an  entanglement  with  its  "improvements." 

Gov.  Carroll,  in  his  message  for  1829,  said  that  the  Bank  of  the  State 
ought  to  be  wound  up.  Within  a  year  it  had  taken  three  hundred  judgments 
against  debtors,  and  the  Knoxville  branch  had  taken  a  hundred  more. 
He  added  that  a  statement  made  by  the  Bank  showed  that  its  debtors  were 
paying,  in  interest,  commissions,  and  charges,  from  twelve  per  cent,  to 
twenty-five  per  cent,  for  every  dollar  which  they  had  borrowed  of  it.  It 
was  employing  sixty-two  agents,  at  great  risk,  and  cost  the  State  $14,000  per 
annum.  "  Our  experience  furnishes  but  too  much  proof  of  the  bad  policy  of 
the  State's  permitting  its  citizens  to  become  its  debtors. " 

In  that  year  the  Bank  of  the  United  States  had  the  business  of  the  Valley 
almost  to  itself.  Judge  Catron  of  Nashville  published  an  address  in  which  he 
pronounced  the  crisis  a  dangerous  one  on  account  of  the  great  debt  of  the 
people  to  the  Bank  of  the  United  States,  and  the  excessive  usury  everywhere 
prevailing,  namely,  from  five  to  ten  per  cent,  per  month.  He  especially 
warned  the  people  against  endorsing  for  each  other. 

The  cashier  of  the  Bank  of  the  State  of  Tennessee  at  Nashville  was  found 
short  in  his  accounts  in  February,  1830,  to  the  amount  of  seventy  or  eighty 
thousand  dollars.  He  refused  to  give  up  the  books  because  the  deficiency 
was  due  to  overdrafts  by  persons  whom  he  would  not  expose.  The  charter 
was  amended  so  that  the  Legislature  should  elect  the  cashier.  The  total 
overdrafts  by  "distinguished  persons"  were  two  or  three  hundred  thousand 
dollars.  Lest  they  should  be  exposed  the  matter  was  hushed  up  and  the 
cashier  was  allowed  to  go.f 

The  Legislature,  however,  demanded  of  the  president  and  directors  of 
the  Bank  of  the  State,  December  20,  1831,  that  they  should  report  the 
dedication  of  the  cashier  and  the  names  of  the  persons  who  had  made  the 
overdrafts,  with  the  amount,  and  whether  they  had  settled. 

In  1831,  the  State  was  draining  the  life  out  of  the  Bank  of  the  State  No.  II., 
by  exactions  for  internal  improvements,  etc.  The  president  and  directors 
were  ordered  to  find  out  how  much  money  there  was  in  the  agencies,  and 
also  to  find  out  the  county  apportionment  of  the  total  of  it,  according  to  the 
census  of  1830,  and  to  apportion  it.  The  School  Commissioners  of  each 
county  were  incorporated  in  order  that  they  might  take  and  hold  it.  The 
county  loan  agencies  were  to  be  discontinued,  May  i,  1832. 

Senator  White  said,  in  1838,  that  this  bank  had  been  converted  into  a 


•  Elliot's  Funding,  1 1 17. 


t  )7  Niles,  427  ;  38  Niles,  427 ;  )3  Niles,  157 ;  40  Niles,  6a. 


..5 


It  :■ 


V  ■■  I 


"». 


152 


A  HISTORY  OF  BANKING. 


specie-paying  bank,  but  that  its  capital  and  profits  iiad  all  been  lost,  and  that 
the  State  was  trying  to  recover  what  it  could  from  the  wreck. 

Ohio. — February  5,  1819,  an  act  was  passed  to  discipline  the  banks 
which  did  not  redeem  their  notes.  Six  per  cent,  damages  might  be 
recovered,  the  evidence  being  the  notes  in  one's  possession.  In  an  execution 
against  a  bank,  the  Sheriff  might  enter  it  and  seize  specie,  notes,  or  books; 
and  if  these  did  not  suffice,  he  might  garnishee  the  debtors  of  the  bank, 
beginning  with  the  directors  or  cashier.  Bank  notes  payable  on  a  future 
day  were  made  unlawful;  notes  under  $1  were  forbidden.  An  act  of 
February  8th  made  it  a  misdemeanor  to  take  a  bank  note  at  less  than  its  face, 
the  penalty  being  a  fine  of  not  over  $500.  Any  one  who  should  pay  away 
a  bank  note  at  a  discount  might  recover  the  discount  in  an  action  at  law,  and 
the  defendant  was  to  have  no  stay  of  execution.  !t  is  stated  that  the  grand 
jurors  of  the  City  Court  of  Cincinnati  decided  that  this  act  was  unconstitutional, 
and  refused  to  notice  violations  of  it.*  It  was  repealed  January  24,  1820. 
Of  twenty-five  banks  in  the  State,  in  18 19,  only  six  or  seven  were  redeeming 
their  notes.  They  were  classified,  November,  1819,  as  seven  good,  four 
decent,  four  middling,  and  four  good  for  nothing. f  The  Farmers'  and 
Mechanics'  Bank  of  Cincinnati  was  believed  to  have  been  greatly  indebted 
to  the  United  States  before  it  received  a  share  of  the  public  deposit.  It  was 
allowed  a  permanent  deposit  of  $100,000.  "Are  we  to  lose  the  whole  for 
the  benefit  of  the  rag  barons?  but  no  cost  can  be  too  great  if  modern  banking 
is  destroyed  by  it."t 

A  more  stringent  and  comprehensive  law  to  enforce  payment  by  the 
banks  was  passed  February  18,  1820.  The  plaintiff  against  a  bank  might 
declare  for  money  had  and  received,  if  over  $100,  and  put  the  bank  notes  in 
evidence  if  payment  had  been  demanded.  He  could  recover  with  six  per 
cent,  interest,  and  have  an  execution  as  by  the  previous  law.  A  Sheriff 
executing  a  judgment  in  favor  of  a  bank  was  to  take  its  notes.  When 
payment  was  demanded  of  a  bank  on  its  notes,  and  not  given,  the  cashier 
was  to  endorse  upon  it  "payment  demanded"  with  ibe  date;  then  it  bore 
interest  at  six  per  cent,  until  paid  in  money  of  the  United  States.  The 
cashier  must  keep  a  book  of  record  of  such  refusals,  and  the  person  who 
demanded  payment  might  demand  an  opportunity  to  see  this  book,  to  verify 
the  entry  of  his  own  demand,  and  might  sign  an  attestation  of  it.  If  the 
cashier  refused  to  do  these  things,  the  penalty  was  ten  per  cent,  on  the 
notes  refused.  A  year  later  it  was  enacted,  Februarys,  1821,  that  in  a  suit 
against  a  bank,  on  its  notes,  real  estate  might  be  levied  on ;  either  the  fee 
or  the  equitable  interest.  After  the  sheriff  has  exhausted  the  goods  and 
chattels,  he  may  levy  on  lands  held  in  trust  for  the  bank,  in  which  case  he 
may  appoint  three  disinterested  persons  to  find  out  and  report  the  amount 
due  on  the  trust  deed,  putting  the  parties  on  oath.  If  the  trustee  refuses  to 
deed  to  the  buyer,  under  the  execution,  the  Court  shall  award  the  property 
with  2S  per  cent,  damages  on  its  value,  against  the  trustee. 


*  lyNiles,  84. 


t  17  Niks,  186. 


%  16  Niles,  434. 


,i  -v. 


nih 


LIQUIDATION  IN  THE  MISSISSIPPI  y ALLEY. 


•=i3 


These  laws  undoubtedly  testify  to  their  own  inadequacy  and  failure. 

In  the  Cincinnati  City  Court,  in  1820,  the  Mayor  charged  the  jury  that 
the  Bank  of  the  United  States  had  no  power  to  discount  notes,  because  that 
power  was  nowhere  in  the  charter  conferred  in  so  many  words.  The  jury 
found  for  the  defendant  accordingly,  the  Bank  being  plaintiff.* 

The  war  between  the  State  of  Ohio  and  the  Bank  of  the  United  States 
began  February  8,  1819,  when  it  was  enacted:  "Whereas the  president  and 
directors  of  the  Bank  of  the  United  States  have  established  two  offices  of 
discount  and  deposit  in  this  State,  at  which  they  transact  banking  business, 
by  loaning  money  and  issuing  bills  in  violation  of  the  laws  of  this  State;  and 
whereas  divers  companies  and  associations  of  individuals  within  this  State, 
unauthorized  by  law,  continue  in  like  manner  to  do  business  as  bankers,  and 
banks,  by  loaning  money  and  issuing  bills,  and  by  trading  in  notes  and 
bills ;  and  whereas  it  is  just  and  necessary  that  such  unlawful  banking, 
while  continued,  should  be  subject  to  the  payment  of  a  tax  for  the 
support  of  government;" — if,  after  the  ist  of  September,  any  of  these 
associations  continue,  they  shall  be  taxed ;  the  United  States  Bank, 
$50,000  per  annum  for  each  office,  and  every  other  company  $10,000. 
On  the  1 5th  day  of  September,  in  each  year,  the  Auditor  is  to  charge 
these  taxes  against  the  companies,  and  to  make  out  his  warrant  to 
the  agent  whom  he  shall  choose  and  appoint  to  demand  payment.  In 
case  of  default,  the  agent  is  to  levy  on  the  goods  of  the  Bank  or  its  credit. 
He  is  to  seize  the  specie  or  notes,  searching  the  Bank  for  them.  The  officers 
may  be  put  to  oath  to  disclose  where  the  funds  are,  and  they  may  be 
summoned  to  court  and  examined,  a  refusal  to  answer  constituting  contempt. 
Debtors  to  the  banks  must  pay  the  State.  The  agent  is  to  pay  the  sum 
collected  to  the  Auditor  and  he  to  the  Treasurer.  The  agent  is  to  have,  as 
his  remuneration,  two  per  cent,  of  the  specie  or  notes ;  five  per  cent,  of  goods 
taken  in  execution ;  and  if  further  proceedings  are  required,  ten  per  cent. 

At  the  September  term  of  the  federal  Circuit  Court,  an  injunction  was 
obtained  forbidding  the  Auditor  to  collect  the  tax  under  this  law.  His  legal 
advisors  were  of  the  opinion  that  there  were  various  irregularities  in  the 
injunction  and  in  the  service  of  it. 

-  September  17th,  John  L.  Harper,  appointed  agent  of  the  Auditor,  Ralph 
Osborne,  and  bearing  his  warrant,  accompanied  by  two  others,  entered  the 
office  of  the  branch  atChillicothe,  jumped  over  the  counter,  took  possession  of 
the  vault,  and  demanded  whether  the  cashier  was  prepared  to  pay  the  tax. 
Upon  a  negative  reply.  Harper  took  from  the  vault  $120,425.  Five  days 
later  he  left  on  the  counter  the  amount  in  excess  of  $100,000.  The  Gov- 
ernor, upon  hearing  of  this,  did  all  in  his  power  to  have  the  money  restored, 
and  offered  to  give  security  for  it;  but  could  accomplish  nothing.  "I  view," 
said  he,  "the  transaction  in  the  most  odious  light,  and  from  my  very  soul  I 
detest  it.     *    *    *    I  am  ashamed  it  has  happened  in  Ohio."f 


i    . 


18  Niles,  39<). 


t  4  Folio  Finance,  903 1  fg. 


I      I 


) 


I 


>54 


/I  HISTORY  OF  BANKING. 


The  bank  suspended  operations  for  a  few  days. 

An  injunction  was  served  on  Harper  while  on  his  way  to  Columbus,  and 
on  Osborne  before  Harper  arrived.  The  money  was  deposited  with  Currie, 
the  State  Treasurer. 

Harper  and  Orr,  one  of  his  assistants,  were  arrested  by  the  deputy  mar- 
shal for  a  trespass  with  violence,  in  taking  the  tax,  and  bail  was  required  of 
each  of  them  to  double  the  amount  of  the  money  they  had  taken.  They 
were  put  in  prison,  where  they  lay,  an  application  for  habeas  corpus  having 
failed,  until  the  following  January,  when  they  were  released  by  the  federal 
Circuit  Court  on  the  ground  that  the  arrest  was  irregular. 

In  the  meantime,  November  22d,  the  United  States  District  Judge  granted 
an  injunction  against  any  disposition  whatever  being  made  of  the  money. 
Upon  the  meeting  of  the  Legislature,  Osborne  made  a  report  of  the  proceed- 
ings. He  was  under  a  stibpama  to  appear  in  January  to  answer  in  a  peti- 
tion for  a  return  of  the  money,  and  an  injunction. 

January  5,  1820,  application  was  made  in  the  federal  Circuit  Court  for  an 
attachment  against  Osborne  and  Harper  for  contempt,  in  disobeying  the 
injunction  of  the  previous  September;  but  after  argument,  the  Court  held 
the  case,  on  account  of  the  important  constitutional  questions  involved, 
under  advisement  until  the  following  September. 

in  September,  a  bill  was  prayed  for  to  enjoin  Currie,  Sullivan,  his  suc- 
cessor in  office,  the  Auditor,  and  his  agents,  from  paying  away  the  money 
or  acting  further  under  the  law.  This  was  granted.  Currie  in  his  answer 
stated  that  he  received  $98,000  from  Harper  (the  latter  having  retained  his 
fee) ;  that  he  had  held  it  separate  and  unused,  and  had  delivered  it  to  his 
successor.  Sullivan,  in  his  answer,  stated  that  a  committee  of  the  House  of 
Representatives  had,  in  January,  1820,  seized  the  moneys  in  the  Treasury. 
The  Court  decreed  that  the  identical  notes  and  coins  which  had  been  taken 
from  the  Bank  must  be  restored  to  it,  and  that  interest  on  the  specie  part, 
$19,830,  must  be  paid.  A  perpetual  injunction  was  granted  against  the 
collection  of  any  tax  in  future  under  the  act  of  Ohio.  By  an  arrangement 
between  counsel,  the  attachment  for  contempt  was  dismissed  at  the  cost  of 
the  defendants,  and  the  action  of  trespass  was  continued,  to  be  dismissed, 
at  the  defendant's  cost,  if  the  Supreme  Court  affirmed  the  decree. 

Sullivan  refused  to  obey  the  decree,  and  was  imprisoned  for  contempt. 
On  the  third  day  of  his  imprisonment,  the  Court  granted  a  writ  of  seques- 
tration against  all  his  property.  The  commissioners  under  it  took  from  him 
the  key  of  the  Treasury,  from  which  they  took  the  $98,000  and  brought  it 
into  Court,  where  it  was  delivered  to  the  agents  of  the  Bank.  The  defen- 
dants appealed,  but  it  was  agreed  that  the  appeal  should  operate  on  the 
$2,000  yet  wanting. 

We  now  meet  with  utterances  of  the  high  State  rights  doctrine  from 
Ohio.  A  committee  of  the  Legislature  made  a  long  report,  about  January 
I,  1821.  They  proposed  acts  of  compromise  with  the  Bank,  and  also  of  out- 
lawry against  it.     A  resolution  which  they  proposed  affirming  the  doctrine 


?1 


LIQ^UIDATION  IN  THE  MISSISSIPPI  GALLEY. 


i=>5 


of  the  resolutions  of '98  was  passed,  58  to  7;  a  protest  against  the  action  of 
the  Court,  58  to  7 ;  declaring  a  determination  to  tax  any  corporation  doing 
business  in  Ohio  under  the  authority  of  the  United  States,  unanimously; 
protest  against  the  doctrine  that  the  Supreme  Court  of  the  United  States  can 
decide  on  the  political  rights  of  States,  in  cases  between  individuals,  64  to 
i;  ordering  the  committee  to  bring  in  the  bills  proposed,  57  to  8.*  These 
resolutions  were  transmitted  to  the  States.  Massachusetts  answered  that 
the  action  of  Ohio,  if  allowed,  would  defeat  the  purposes  of  the  law  by 
which  the  Bank  was  established.! 

January  29,  1821,  an  act  was  passed  "to  withdraw  from  the  Bank  of  the 
United  States  the  protection  and  aid  of  the  laws  of  this  State  in  certain 
cases."  No  sheriff  or  jailer,  after  September  i,  1821,  is  to  take  any  debtor 
into  custody  on  suit  of  the  Bank  of  the  United  States;  nor  any  person  com- 
mitted for  offenses  against  its  property,  rights,  etc.  No  officer  of  justice  is 
to  take  proof  of  a  deed  or  other  instrument  to  which  the  Bank  of  the  United 
States  is  a  party,  and  no  recorder  is  to  receive  or  record  such  deeds.  No 
notary  is  to  protest  a  note  payable  to  that  Bank.  The  penalty  on  a  sheriff 
or  Jailer  for  violating  this  act  is  $200  fine;  a  judge  or  other  magistrate,  if  he 
does  what  is  here  forbidden,  will  be  guilty  of  a  misdemeanor,  and  shall  be 
fined  not  over  $500.     A  disobedient  notary  shall  be  removed. 

At  this  point  the  Legislature  seemed  disposed  to  recede;  for  it  was 
enacted,  February  2,  1821,  that  the  State  was  willing  to  forego  the  tax  if  the 
Bank  would  pay  four  per  cent,  on  the  Ohio  business  profits,  and  withdraw 
its  suits  against  the  State  officers.  If  it  agrees  to  this,  or  will  withdraw 
from  the  State,  the  Governor  is  to  certify  the  Auditor,  who  is  to  return 
$90,000,  after  which  the  tax  shall  be  $2,500  per  annum,  or  the  above  per- 
centage of  the  dividends  on  the  Ohio  business.  Any  one  who  impedes  the 
Auditor  in  the  discharge  of  duty  laid  upon  him  by  law  is  to  be  imprisoned 
not  over  six  months,  and  fined  not  over  $500. 

The  Supreme  Court  of  the  United  States  affirmed  the  decision  in 
Osborne's  case,  March  19,  1824,  except  that  interest  should  not  be  paid 
on  the  coin  part  of  the  money  taken.  J 

The  law  outlawing  the  Bank  of  the  United  States  was  repealed, 
January  18,  1826. 

The  State  finances  were  in  a  most  prosperous  state  at  this  time,  or  would 
have  been  so  if  its  cash  on  hand  had  had  value.  The  Treasurer  reported, 
1820,  that  the  balance  in  the  Treasury  was  $155,147,  including  $98,000 
taken  from  the  Bank  of  the  United  States,  but  the  rest  was  nearly  all  in 
uncurrent  notes  of  the  banks  in  the  State.  He  gives  a  list  of  them  in  which 
appear  nearly  all  the  banks  of  1816. 

In  his  report  for  182 1,  he  reported  that  he  had  obtained  judgments 
against  a  number  of  the  banks  of  the  State,  and  was  trying  to  find  their 
property.     In  1822,   at  least  eight  of  them  were  bankrupt.     A  law  of  Feb- 


•1      ! 


*  19  Niles,  339. 


t  21  Niles,  404. 


I  Wheaton.  739. 


'm 


156 


A  HISTORY  OF  BANKING. 


It 


I; 


ruary  5,  1825,  provided  that  all  the  banks  under  the  law  of  February  23, 
1816,  should  be  re-invested  with  the  shares  which  had  been  set  off  to  the 
State,  if  they  would  pay  the  State  two  per  cent,  on  their  dividends  from 
their  organization  until  this  time,  and  four  per  cent,  on  their  dividends  for 
the  future,  and  concede  to  the  State  the  right  to  tax  them.  During  the  next 
years  these  banks  were  in  liquidation.  An  act  of  March  },  1824,  provided 
that  the  Treasurer  might  compound  and  settle  all  claims  of  the  State  against 
seven  or  eight  of  them.  In  1831,  twenty  were  reported  broken,  including 
our  old  acquaintances  the  Banks  of  New  Philadelphia  and  Owl  Creek.* 

Indiana.— January  8,  i8i8,t  interest  at  six  per  cent,  was  imposed  on 
bank  notes  not  paid  on  demand  in  specie.  Any  officer  of  the  bank  was  to 
endorse  the  demand  and  refusal  or  be  fined  the  amount  of  the  note,  and 
witnesses  might  be  called  in  on  whose  testimony  a  justice  of  the  peace 
should  endorse. 

The  Vincennes  Bank,  acting  as  a  bank  of  the  State,  became  an  object  of 
suspicion  and  examination  in  182 1.  A  joint  resolution  provided  for  an 
investi}?ation,  to  find  out  whether  the  mother  bank  had  issued  notes,  paya- 
ble by  its  branches,  without  their  knowledge.  At  the  following  session,  in 
December,  the  State  Treasurer  was  directed  to  make  a  formal  demand  on 
that  bank  and  its  branches,  for  payment  of  their  notes  in  the  treasury.  If 
payment  was  refused,  he  was  to  tender  to  the  mother  bank  at  Vincennes 
the  said  notes,  in  payment  of  the  loans  of  the  bank  to  the  State.  A  week 
later,  a  joint  resolution  was  adopted  that  a  quo  warranto  should  be  brought 
against  the  bank  for  a  violation  of  its  charter  and  the  laws,  and  that  if  judgment 
was  obtained  against  the  bank,  the  Governor  should  appoint  three  receivers 
to  wind  it  up.  In  this  suit  the  bank  was  found  guilty  on  four  points,  each 
of  which  would  work  forfeiture.  Its  debts  were  more  than  the  legal  limit; 
it  had  made  fraudulent  over-issues  which  it  could  not  redeem ;  it  had  made 
large  profits  while  suspended;  deposits  left  for  safe-keeping  had  been 
embezzled. t 

The  tide  now  seems  to  turn  against  the  relief  system.  January  3,  1822, 
it  was  enacted  that  there  should  be  no  execution  on  replevin  bonds.  If 
seven  year  rents,  on  being  offered  for  sale,  do  not  bring  enough  to  pay  the 
debt,  the  land  is  to  be  sold.  Replevin  bonds  are  to  date  from  the  judgment 
and  not  from  the  sale  on  execution.  The  jury  of  freeholders  is  to  consist 
of  five.  This  last  provision  was  declared  unconstitutional.  January  nth, 
the  old  territorial  law  was  revived,  which  established  a  limited  stay,  varying 
from  thirty  days,  on  a  debt  of  $6,  up  to  one  hundred  and  eighty  days  on  a 
debt  of  over  $100,  and  property  taken  on  execution  was  to  be  sold  for  what 
it  would  bring. 

In  a  report  of  the  State  Treasurer,  January  13,  1825,  there  is  returned 
amongst  the  liabilities  of  the  State  a  sum  due  to  the  "United  States, 
assignee  of  the  Vincennes  Bank,"  and  payments  on  this  account  occur  in 


*  Elliot's  Funding,  1 122. 


t  In  the  Lsws  for  1820-21,  page  34. 


:  I  Blackford,  267.. 


LIQUIDATION  IN  THE  MISSISSIPPI  i^ ALLEY. 


'57 


the  reports  of  the  following  years.  This  is,  no  doubt,  a  debt  for  a  federal 
deposit  in  that  bank,  for  which  the  State  found  itself  liable.  There  were 
then  $20,000  of  treasury  notes  outstanding.  From  the  forfeiture  of  the 
Vincennes  Bank,  in  1823,  until  1834,  there  was  no  bank  in  Indiana.  There 
is  no  evidence  that  the  State  found  itself  any  the  worse  for  the  lack.  In 
1829,  we  find  a  law  making  further  provision  for  the  liquidation  of  the  Far- 
mers' and  Mechanics'  Bank.  As  a  specimen  of  loose  legislation,  it  may  be 
noted  that  the  act  continues  "all  the  privileges  and  franchises  heretofore 
granted."  In  1834,  the  time  was  extended,  but  it  was  forbidden  to  do  any- 
thing but  liquidate.     All  its  notes  were  redeemed.* 

Illinois.— January  16,  1821,  all  executions  were  suspended  until  Novem- 
ber 20th,  and  property  which  had  been  levied  on  was  restored  to  the 
debtor. 

At  the  same  time,  the  Bank  of  the  State  of  Illinois  was  chartered  against 
the  veto  of  the  Council  of  Revision,  in  which  the  vote  was  3  to  5.  It  was 
established  at  Vandalia,  for  ten  years,  with  $500,000  capital,  all  owned  by 
the  State,  and  was  to  have  four  branches  and  no  more.  The  president  and 
directors  of  the  principal  bank  were  to  be  elected  by  the  Legislature.  The 
first  issue  of  notes  was  to  be  for  $300,000,  from  ones  to  twenties,  bearing 
two  per  cent,  interest,  receivable  by  the  bank  or  the  State;  to  be  allotted  to 
the  districts  in  which  the  branches  were  established  in  proportion  to  popu- 
lation. The  presidents  and  directors  of  the  branches  were  to  lend  the  notes 
out  over  the  district  in  proportion  to  population,  on  mortgage  for  loans 
over  $100,  on  personal  security  for  loans  under  $100,  at  six  per  cent.,  the 
loans  being  renewable  yearly,  and  to  be  "considered  as  standing  accommo- 
dations," the  notes  for  the  loans  being  made  payable  twelve  months  from 
date.  The  notes  of  the  borrowers  ran  to  the  president  and  directors  of  the 
bank  "for  the  use  of  the  people  of  said  State."  The  lands  and  revenues  of 
the  State  were  pledged  for  the  debts  of  the  bank  and  the  Legislature  pledged 
the  State  to  pay  all  the  currency  issued  by  the  bank  within  ten  years,  in 
gold  or  silver.  No  execution  was  to  issue  on  any  replevin  bond  or  judg- 
ment, until  November  i,  1821.  On  all  causes  of  action,  before  the  follow- 
ing May,  replevin  was  to  be  granted  for  three  years,  unless  the  plaintiff 
would  endorse  that  the  notes  of  this  bank  would  be  received.  The  loans  of 
the  bank  were  to  be  repaid  on  installments  within  ten  years,  and  one-tenth 
of  the  notes  were  to  be  withdrawn  annually  and  not  re-issued.  The  State 
funds  were  to  be  deposited  in  the  bank;  the  school  money  receivable  from 
the  United  States  was  to  be  paid  over  to  it,  with  all  specie  or  land-office 
money,  and  notes  for  double  the  amount  of  these  funds  might  be  issued  and 
allotted  in  loans  as  above.  This  last  provision  seems  to  be  a  kind  of  adden- 
dum,— no  doubt  tacked  to  the  bill  in  its  course  through  the  Legislature.  It 
was  repealed  February  18,  1823.  This  State  squandered  and  misappropri- 
ated its  schoo\  money  for  ten  years.     February  12th,  a  supplement  to  the 

•  Dillon;  Indiana,  i^i;. 


ill 


^      h 


i   !' 


4. 


! .  f    1 


158 


A  HISTORY  OF  BANKING. 


act  for  the  Bank  of  the  State  enacted  that  there  should  be  sixty  days  replevin 
even  when  there  was  an  endorsement.  On  contracts  after  May  ist,  for 
State  Bank  money,  the  same  stay  was  provided,  and  in  the  same  way,  as 
that  already  provided  for  other  contracts;  but  if  the  contracts  were  for  gold 
or  silver,  the  stay  should  be  thirty  days  for  a  debt  of  $io,  and  a  longer 
time  for  larger  debts,  up  to  one  hundred  and  fifty  days  for  a  debt  over  $40. 

The  bank  went  into  operation  in  1821.  All  who  could  get  endorsers 
borrowed  a  hundred  dollars.  The  people  cut  the  bills  into  two  pieces  so  as 
to  make  halves  of  a  dollar.  For  about  four  years  there  was  no  other 
money  but  that  of  the  Bank  r*"  the  State.  Few  pretended  to  pay  their 
debts  to  the  bank.  More  than  half  of  the  borrowers  considered  their 
debts  as  clear  gain  and  never  intended  to  pay  them.*  Many  debtors 
refused  to  pay  on  the  ground  that  the  notes  were  bills  of  credit. f 

The  Supreme  Court  of  the  State  decided,  in  1826,  that  a  debtor  to  the 
bank  could  not  raise  the  question  of  its  constitutionality ;  that  is,  could  not 
dispute  his  own  liability  on  the  ground  that  the  notes  were  bills  of  credit.  J 
This  decision  prevailed  as  long  as  the  Bank  existed,  but  was  overthrown  in 
1833,  when  the  notes  of  this  bank  were  decided  to  be  bills  of  credit.§  It 
was  decided,  in  1829,  that  a  debt  to  this  bank  was  a  debt  to  the  State 
which  the  State  could  forgive.  || 

From  1821,  auditors'  warrants  were  made  receivable  for  bank  debts. 
They  had  been  issued  at  one-third  of  their  face  value,  and  were  so  quoted, 
while  the  State  was  liable  for  the  full  face  value.  There  was  a  peculiar 
provision  that  each  member  of  the  Legislature  was  to  receive  such  a  sum,  by 
way  of  remuneration,  not  exceeding  $7  a  day,  as  he  should  designate,  by 
writing  the  same  on  a  piece  of  paper,   that  he  was  willing  to  receive.!" 

At  the  same  time  that  the  Bank  of  the  State  was  chartered,  all  unauthorized 
paper  currency  was  forbidden,  under  a  penalty  of  $10,000.  If  it  was  issued 
by  a  corporation,  the  charter  was  to  be  forfeited  and  the  members  were 
made  individually  liable  for  this  fine. 

February  17,  1823,  the  execution  and  stay  laws  were  codified,  with 
slight  modifications.  Thirty  days  were  allowed  for  the  redemption  of 
personal  property  sold  on  execution,  fifteen  per  cent,  advance  on  the  price 
being  given.  On  the  following  day,  another  law  on  the  same  interminable 
subject  forbade  any  execution  to  issue  on  a  judgment  by  a  justice  of  the 
peace,  until  thirty  days  after  it  was  rendered.  At  every  meeting  of  the 
Legislature,  a  new  attempt  was  made  to  modify  these  laws  so  as  to  deprive 
the  creditor  of  his  rights  and  remedies.  The  only  plea  which  has  ever  been 
made  on  behalf  of  these  laws  is  that  under  them  the  debtors  and  creditors 
were  led  to  make  compromises  and  settlements  with  each  other,  and  that, 
in  the  existing  state  of  things,  probably  this  was  the  most  just  and  reason- 
able course  that  could  be  adopted. 

December  16,  1824,  commissioners  were  appointed  to  make  an  examin- 


•  Ford,  47. 


t  Edward's  Edwards,  175. 
I  I  Breese,  }i6. 


X  I  Breese,  161. 


$  I  Scammon,  87. 


^  Edwards's  Edwards,  176. 


m\ 


1 


LIQUIDATION  IN  THE  MISSISSIPPI  y ALLEY. 


isq 


ation  of  the  bninch  of  the  Bank  of  the  State  at  Shawneetown.  The 
president  and  directors  of  it  were  to  pay  over  all  moneys  to  the  cashier  of 
the  head  bank.     This  indicates  some  malfeasance  in  that  branch. 

The  cashier  of  the  Bank  of  the  State  was  ordered,  January  lo,  182s,  to 
burn  all  the  notes  in  it,  including  those  unsigned  and  unissued.  This  marked 
a  revulsion  against  the  institution.  All  notes  which  should  be  paid  in  after- 
wards were  to  be  stamped  "reissued,"  and  to  bear  no  interest.  The  cashiers 
of  the  branches  were  to  pay  over,  at  the  half  yearly  audit,  to  the  head  bank 
all  the  money  on  hand.  The  bank  was  to  receive  no  more  individual 
deposits,  and  was  to  receive  auditors'  warrants  in  payment  of  bank  loans. 

January  28,  i8a6,  it  was  orrlered  that  State  paper  should  not  be  paid  out 
of  the  treasury  at  more  than  fifty  per  cent,  discount,  and  the  Bank  of  the 
State  was  to  determine  every  three  months  the  valuation  at  which  that  paper 
should  be  paid  out  during  the  following  three  months.  No  debt  to  the  Bank 
of  the  State  was  to  be  scaled  by  the  Court.  If  any  debt  had  been  scaled  and 
endorsed,  under  the  act  of  January  18,  1825,  the  sheriff  was  to  collect,  In  specie 
or  State  paper,  or  bank  notes.  The  wording  is  extremely  confused  and 
unintelligible,  but  it  seems  to  mean  that  he  shall  take  paper  enough  at  the 
scale  of  depreciation  to  equal  specie. 

In  speeches  which  he  made  in  the  State  campaign  of  1826,  Ninian 
Edwards  declared  that  the  State  was  paying  out  notes  of  the  Bank  of  the 
State  at  33  cents  on  $1,  but  had  to  receive  them  for  taxes,  etc.,  at  their  face, 
and  that  the  non-resident  taxpayers  bought  them  up  at  that  rate,  although  it 
appears  that  they  had,  by  so  doing,  raised  their  value;  for  he  said  that  they 
would  cost  them  50  cents  on  $1  at  the  time  of  speaking.  In  five  years,  about 
$100,000  of  the  bank  notes  had  been  withdrawn,  but  auditors'  warrants  had 
been  issued  in  place  of  them  and  had  depreciated  to  about  the  same  extent. 
The  debtors  to  the  Bank  of  the  State  were  buying  them  at  from  30  to 
50  cents  on  $1  and  were  paying  their  debts  to  that  bank  with  them.  The 
loans,  therefore,  if  all  paid  in,  would  fail  to  cancel  the  notes  of  the  bank,  for 
which  the  State  was  liable  in  specie,  dollar  for  dollar."" 

Edwards  was  elected  Governor,  and  brought  about  an  investigation  of 
the  Bank  of  the  State  whose  officers  he  charged  with  mismanagement  and 
corruption.  The  committee's  report  showed  mismanagement,  but  such 
was  the  influence  of  a  bank  conducted  by  public  officers  that  this 
committee  was  packed  to  make  a  report  against  the  charges.!  Ford 
makes  far  better  criticisms  on  the  Bank  of  the  State  system  than 
any  other  contemporaneous  writer.  He  noticed  the  cardinal  fact,  in 
respect  to  these  institutions  and  to  public  improvements  also,  that  the 
communities  in  which  they  were  undertaken  could  not  furnish  com- 
petent men  for  their  management.  Scarcely  a  word  is  to  be  found  to 
show  that  the  legislators  had  any  idea  that  the  management  of  a  great  bank 
would  require  any  special  ability,  skill,  or  training.     They  set  up  a  bank. 


*  Edward's  Edwards,  208. 


+  Ford,  65;  Reynolds,  173. 


i6o 


A  HISTORY  OF  BANKING. 


Mi 


liMI 


with  $1  million  or  $2  millions  capital,  assuming  that  it  was  going  to  run 
itseif  and  produce  great  profits,  never  troubling  themselves  at  all  about  the 
question  who  was  competent  to  manage  it,  to  attain  these  results.  The 
Legislatures  always  furnished  from  amongst  their  own  members  a  large 
numbe.  of  candidates  for  the  offices  in  the  bank.  These  men  had  no  training 
whi.te/er,  except  what  they  had  obtained  from  some  participation  in  politics. 
The  case  was  fortunate  when  the  worst  that  could  be  laid  to  them  was 
incompetency.  They  had  crowd?  of  hungry  adherents;  there  were  rivals 
who  were  eager  for  rotation  in  the  L  -nk.  They  were  forced  to  favoritism 
towards  a  clique  of  supporters,  and  they  could  not  be  independent  against 
the  leading  politicians  of  the  State.  In  many  cases,  also,  it  is  beyond 
question  that  they  sought  the  positions,  and  used  them  in  a  shameless  manner, 
for  their  private  interests.  It  never  proved  possible  to  call  them  to  account 
or  to  hold  them  to  responsibility. 

The  deposits  in  the  B.i.nk  of  the  State  were  ordered  to  be  paid  back 
February  13,  1827.  The  debtors  to  the  Bank  of  the  State  might  renew  their 
notes,  and  no  execution  was  to  issue  against  one  of  them  for  three  months. 
Here  begin  the  enactments,  half  of  indulgence,  half  of  coercion,  showing  the 
uncollectibility  of  the  bank  loans.  The  debtors  were  allowed,  January  2?, 
1829,  to  pay  in  three  annual  installments,  giving  thiee  notes.  If  they  did 
not  accept  this  arrangement,  and  give  security,  before  September  ist,  the 
bank  was  to  sell  the  previous  security  and  take  three  notes  for  the  purchase 
money  at  one,  two,  and  three  years,  with  security,  "which  bond  shall  have 
the  force  of  a  replevin  bond."  A  record  was  to  be  kept  of  the  kind  of  money 
received  in  these  transactions.  Any  debtor  who  paid  by  July  i,  i8jo,  was 
to  be  released  from  interest,  and  those  who  paid  before  September  i,  1829, 
were  to  get  ten  per  cent,  discount.  Year  after  year,  either  the  bank  or  the 
bank  debtors  besought  the  Legislature  for  relief 

In  1829,  Gov.  Edwards  tried  to  draw  the  three  per  cent,  fund  due  from 
the  United  States.  The  Treasury  Department  would  not  pay  it  because 
it  was  not  sr.tisfied  that  the  State  was  using  the  money  as  the  law  pre- 
scribed. Edwards  wrote  a  letter  substantially  to  the  effect  that  it  was 
none  of  the  Secretary's  business  what  the  State  did  with  it.  It  was  used  in 
buying  up  ilio  State  debt  as  an  investment.  The  Commissioners  of  the  Fund 
.'Ought  State  bank  notes  which  were  cancelled,  and  the  Auditor  of  puolic 
accounts  gave  them  a  certificate  of  the  indebtedness,  so  that  the  State  simply 
borrowed  the  school  fund  and  used  it  in  paying  old  debts,  under  a  promise 
that  it  would  some  time  establish  and  support  schools  by  taxes.*  The  big 
State  paper  money  machine  led  the  people  to  despoil  their  own  children  of 
the  bounty  of  the  federal  j-,overnment.  Edward's  letter  is  a  splendid  specimen 
of  the  State  rights  literature  of  the  period. 

At  every  turn  there*'ore,  we  tind  pioofs  that  "the  paper  of  this  Lank  was 
tloating  through  the  atmosphere  of  Illinois  for  ten  years,  as  a  poisoiing  and 


*  Edward's  Hdwards,  240. 


LIQUIDATION  IN  THE  MISSISSIPPI  VALLEY. 


i6i 


pestilential  vapor,  that  withered  am'  blighted  the  country  for  that  length  of 
time.  The  paper  never  was  at  par,  and  sunk  at  times  as  low  as  twenty-five 
cents  on  the  dollar.  "* 

In  the  course  often  years  the  bank  must  have  lost  more  than  $150,000 
by  receiving  depreciated  currency;  $150,000  more  by  paying  it  out;  and 
$100,000  of  the  loans  which  were  never  repaid  by  the  borrowers,  and  which 
the  State  had  to  make  good.f 

The  cashier  of  the  bank  was  in  default,  in  1851,  and  could  not  close  his 
accounts.  Commissioners  were  appointed  to  examine  and  make  a  settle- 
ment. 

The  State  was  bound,  according  to  the  terms  of  the  incorporation  of  the 
Bank  of  the  State,  to  redeem  all  the  notes  of  that  bank  in  specie  in  1831. 
All  parties  had  shirked  preparation  for  this  obligation  until  the  last  moment. 
January  27,  1S31,  the  Governor  was  authorized  to  borrow  $100,000,  with 
which  to  redeem  the  outstanding  notes  of  the  bank,  this  loan  to  be  payable 
after  1850  in  specie  or  notes  of  the  Bank  of  the  United  States.  This  was  the 
''Wiggins  Loan."  February  15th,  it  was  provided  that  the  notes  of  this 
bank  might  be  funded  in  six  per  cent,  bonds,  redeemable  at  the  pleasure  of 
the  State.  Any  specie  in  the  treasury  was  to  be  applied  to  the  redemption 
of  the  notes,  and  they  were  to  be  burned. 

The  last  enactment  in  reference  to  the  debtors  to  the  bank  was  February 
I  J,  1835.  They  might  have  three  years  to  pay  their  debts.  Ail  the  interest 
aid  twenty-five  per  cent,  of  the  principal  was  remitted.  Thus  those  who 
\  ad  been  the  most  remiss  were  the  most  rewarded,  and  any  one  who  had 
paid  earlier  saw  that  he  had  made  a  mistake. 

The  Missouri  Loan  Office, t  which  became  famous  through  the  case  of 
Craig  vs.  IVlissouri,  was  established  at  a  special  session  of  the  Legislature, 
June  27,  1821,  as  a  relief  measure.  The  State  was  divided  into  five  districts, 
and  a  Ijan  office  was  established  in  each  under  the  supervision  of  commis- 
sioners elected  by  the  General  Assembly.  The  Auditor  and  Treasurer  were 
to  issue  certificates  for  $:oo,ooo,  in  denominations  from  50  cents  to  $10,  of 
the  following  tenjr:  "This  certificate  shall  be  receivable  at  the  treasury 
or  any  of  the  loan  offices  of  the  State  of  Missouri,  in  discharge  of  taxes  or 

debts  to  the  State,  for  the  sum  of dollars,  with  interest  for  the  same, 

at  the  rate  of  two  per  cent,  from  this  date."  The  loans  in  each  district  were 
to  be  proportioned  to  the  population,  and  to  be  secured  by  mortgage  or  per- 
sonal security;  the  mortgages  not  to  exceed  one-half  the  value;  the  loan 
to  be  for  not  more  than  one  year;  the  interest  to  be  six  per  cent,  in  advance; 
the  repayment  not  to  be  required  more  rapidly  than  ten  per  cent,  every  six 
months;  no  loan  on  personal  security  to  exceed  $200,  nor  any  other  to 
exceed  $1,000;  one-tenth  of  the  notes  were  to  be  withdrawn  annually  by 
the  Auditor  anc  Treasurer.  The  Governor  was  to  negotiate  a  lean  of  specie 
for  any  amount  up  to  the  amount  of  the  notes  issued,  and  if  the  Legislature 


i 


\      i 


'  Reynoliis,  143. 
11 


t  Ford,  47. 


X  Seepage  141. 


m 


iVri?  ; 


m 

I'M" ;::;'!  £ 


1^ 


I 


Si 


C'v 


162 


^  HISTORY  OF  BANKING. 


should  approve  the  contract,  such  loan  was  to  be  a  fund  for  the  redemption 
of  the  certificates.  An  appropriation  of  $2,000  was  made  for  expenses. 
The  salt  springs  and  lands  attached  thereto  were  to  be  leased,  and  the 
lessees  were  to  stipulate  that  they  would  take  these  certificates  for  salt  at 
the  rate  set  by  law.  The  State  revenue  from  the  salt  springs,  and  al!  the 
State  property  and  credit,  were  pledged,  with  the  faith  of  the  State,  to 
redeem  the  certificates. 

A  comparison  of  this  institution  with  the  great  Banks  of  the  States,  above 
described,  will  show  what,  if  any,  difference  there  was  between  them.  If 
the  Loan  Office  had  been  called  a  bank,  and  the  commissioners  directors, 
and  if  it  had  been  said  of  the  latter  that  they  were  "incorporated,"  no 
difference  would  have  been  discernible. 

There  was  understood  to  be  a  strong  implication  that  this  Loan  Office 
was  to  issue  no  more  than  the  sum  mentioned  in  the  act;  but  within  a  few 
months  another  $100,000  were  issued.  The  depreciation  increased  there- 
upon from  33  1-3  per  ceni.  to  50  per  cent.* 

The  law  was  declared  unconstitutional  in  the  St.  Louis  Circuit  Court,  in 
February,  1822,  in  Missouri  vs.  Lane,  the  issue  being  pronounced  to  be  bills 
of  credit.  The  Judge  in  his  decision  gives  us  some  glimpses  of  the  situa- 
tion. "Kentucky  had  got  the  stait  of  us  in  the  paper  money  system,  and 
her  citizens,  finding  there  was  nothing  else  to  be  had  at  home  for  their  pro- 
ducts, brought  them  here  and  sold  them  to  us  at  reduced  prices.  The 
advantage  of  this  to  the  consumer  was  overlooked,  and  we  determined  to 
adopt  the  paper  system,  to  exclude  the  commerce  of  Kentucky.  This  pur- 
pose has  been  accomplished.  The  price  of  produce  has  been  so  reduced 
that  that  of  Kentucky  comes  here  no  longer."  "We  are  told  of  the  'pesti- 
lent effects  of  paper  money  on  the  industry  and  morals  of  the  people.'" 
On  this  subject,  let  us  look  to  the  listlessness,  the  broken-hearted  indiffer- 
ence to  exertion,  which,  under  the  pressure  of  great  pecuniary  distress 
(the  strongest  incentive  to  exertion,  where  every  ray  of  hope  is  not 
excluded)  pervades  the  hardy  population  of  this  fertile  country.  Let  us  lOok 
for  Its  effect  on  morals  to  the  criminal  dockit  of  this  court,  at  this  term. 
Offenses,  the  offspring  of  wantonness,  of  folly,  of  desperation,  of  a  culti- 
vated contempt  for  the  rights  and  feelings  of  others,  and  disregard  for  the 
opinion  of  the  world,  and  disrespect  for  what  men  have  been  accustomed 
to  hold  respectable, — and  in  short  of  a  total  depravation  of  the  moral  sense 
and  dissolution  of  moral  obligation,  encumber  our  proceedings  and  disgrace 
our  records." 

In  connection  with  the  Loan  Office,  a  new  and  wider  stay  law  was  also 
enacted  December  28,  1821.  Each  county  court  might  appoint  three 
valuers.  The  plaintiff  might  endorse  that  he  would  take  property  at  two- 
thirds  of  the  valuation.  When  the  Sheriff  makes  a  levy,  the  valuers  are  to 
value  the  property.     After  twenty  days  it  is  to  be  put  up  for  sale.     If  no 


*  Missouri  vs.  Lane,  in  the  St.  Louis  Circuit  Court,  Ftbruary.  i8j2.     Supplement  to  22  Niles,  128. 


ir-'H 


LIQ^UIDATION  IN  THE  MISSISSIPPI  GALLEY. 


163 


bid  amounts  to  two-thirds  if  the  valuation,  the  Sheriff  is  to  deliver  the 
property  to  the  creditor  at  that  limit.  If  the  creditor  makes  no  endorse- 
ment, the  debtor  is  to  have  a  stay  for  two  years  and  six  months,  giving 
bond,  with  sureties,  approved  by  the  Sheriff.  This  law  is  not  to  apply  to 
debts  for  le;'d  ore  delivered.  Instead  of  giving  a  bond  with  sureties,  the 
debtor  may  give  land  at  two-thirds  of  the  appraisal,  as  security,  the  judg- 
ment being  then  construed  as  a  mortgage.  At  the  expiration  of  this  stay, 
if  the  debt  is  not  paid,  there  is  to  be  a  peremptory  sale.  The  act  applies  to 
foreclosures  on  mortgage.  If  the  Sheriff  violates  this  act  in  his  proceedings, 
he  is  to  be  fined  $20,  and  the  sale  is  to  be  void.  On  January  i  ith  follow- 
ing, the  further  provision  was  made  that  the  plaintiff  might  endorse  Loan 
Office  certificates. 

This  act  was  also  at  once  declared  unconstitutional  in  the  Circuit  Court  of 
St.  Louis  county,  in  the  case  of  Glasscock  vs.  Steen,  with  a  citation  of  Critten- 
den 'cs.  Jones*  and  Townsend  vs.  Townsend.f  The  Supreme  Court  of  the 
bt;it(.  confirmed  this  decision,  and  the  people  acquiesced. J  The  stay  law 
wa>  repealed  Novcinber  27,  1822. 

The  Bank  of  Missouri  failed  in  the  summer  of  1821.  Its  capital  was 
§210,000,  of  which  the  d. rectors  had  paid  $108,795  by  stock  notes.  They 
had  borrowed  $79,569  on  mortgage  security,  $60,075  on  personal  security, 
nd  they  were  liable  for  $r/,3 10  as  endorsers,  so  that  they  owed  it  more 
Than  $75,ooc  in  excess  of  its  capital.  The  notes  in  circulation  amounted  to 
$84,301.  The  bank  also  held  United  States  deposits  to  the  amount  of 
$152,407.§ 

The  State  expenses  were  provided  for,  January  2,  1822,  by  $50,000  Loan 
Office  certificates.  In  the  same  month,  two  supplementary  acts  were 
passed  to  perfect  the  Loan  Office  system.  December  29,  1 821,  $50,000  in 
Loan  Office  certificates  were  loaned  to  Neziah  Bliss,  to  encourage  him  to 
establish  iron  works.  January  11,  1822,  $10,000  in  Loan  Office  certificates 
were  granted,  under  certain  conditions,  to  some  persons  who  promised  to 
set  up  a  grist  mill,  and  $40,000  in  certificates  were  reserved  for  similar 
encouragements  to  other  industrial  enterprises. 

Thi:  was  entering  on  a  wide  field  of  possibilities;  but  the  next  Legisla- 
ture assembled  with  quite  different  ideas.  One  of  its  first  acts,  November 
27,  1822,  was  to  enact  that  no  mot.  Loan  Office  certificates  should  be  paid 
out  or  loaned,  and  the  grant  to  Bliss  was  revoked.  December  iSth,  the 
whole  system  was  arrested  as  far  as  possible.  Loans  were  to  be  called  in 
at  the  rate  of  ten  per  cent,  every  six  months.  The  certificates  were  not  to 
be  receivable  for  the  fees  of  State  officers.  Next  followed  the  stru  •  .e  .0 
bring  about  a  liquidation  of  the  contract  between  the  State  and  its  debtors, 
as  in  all  the  other  cases  of  this  kind.  We  find  a  law  for  this  purpose  in 
1829  and  another  in  1831.  In  the  latter  it  is  provided  that  the  debtors  shall 
be  released  at  so  cents  on  the  dollar. 


^\m 


'Miaiii 


!« 


\'\ 


:M 


>  Battle  &  Taylor  ;  N.  C.  Repository,  5?. 


t  See  page  14» 
i  ai  Niles,  38. 


1 11  Niles,  226;  Supplement,  121  ;  21  Niles,  148. 


,aW 


'I  % 


164 


A  HISTORY  OF  BANKING. 


m 


Mississippi. — A  joint  resolution  was  passed  against  the  admission  of  a 
branch  of  the  Bank  of  the  United  States,  February  12,  1828,  on  the  ground 
that  any  such  bank  ought  to  be  taxable,  like  the  property  of  Mississippians. 
This  act  was  repealed  December  13,  1830,  and  the  Bank  was  invited  to 
establish  a  branch  in  the  State.     One  was  established  at  Natchez. 

Alabama. — At  the  session  of  1820-21,  we  find  the  State  struggling  with 
the  suspended  banks.  In  a  tax  law  of  December  20,  1820,  a  tax  of  fifty 
cents  per  share  was  laid  on  bank  stock,  but  it  was  to  be  doubled  on  any 
bank  which  was  not  paying  specie  on  July  i,  1821.  A  year  later  it  was 
enacted  that  after  February  15,  1822,  no  note  should  be  receivable  by  the 
State  for  dues  or  penalties,  unless  the  bank  which  issued  it  was  regularly 
redeeming  its  notes  with  specie.  Any  note-holder  might  get  judgment 
against  the  bank  for  a  note  not  paid  on  demand,  and  if  any  bank  should  not 
be  redeeming  its  notes  in  July,  1822,  the  Governor  was  to  inform  the 
prosecuting  officer  of  the  county  in  which  it  was  situated,  directing  him  to 
try  a  qtio  zcarraiito  to  forfeit  the  charter.  In  a  tax  law  passed  at  the  same 
time,  the  Governor  was  directed  to  inform  the  tax  collectors  of  a  suspension 
by  any  bank,  in  or  out  of  the  State ;  the  notes  of  such  bank  were  not  to  be 
received.  The  penalty  tax  was  also  re-enacted.  November  29,  1821,  the 
Governor  was  directed  to  pay  t!.e  debt  of  the  State  to  the  Huntsville  Bank 
in  its  own  notes  then  in  the  Sti  te  treasury. 

A  year  later  a  gito  warranto  having  been  entered  against  the  Planters'  and 
Merchants'  Rank,  the  suit  was  suspended,  until  March  i,  1823,  on  condition 
that  the  bank  would  pledge  itself  to  resume  during  1823.  If  it  should  sus- 
pend at  any  time  after  January  i,  1824,  the  Governor  was  to  issue  a  procla- 
mation that  its  charter  was  void.  December  31,  1823,  however,  we  find 
another  act  ordering  this  bank  to  resume  August  ist  of  the  next  year,  or 
forfeit  its  charter.  If  it  assents  to  this,  the  quo  warranto  is  to  be  further 
suspended;  if  not,  it  i.  to  be  prosecuted. 

At  the  end  of  1823,  the  distress  of  the  peopK^  in  the  northern  counties 
was  very  great.  They  had  only  Huntsville  money.  The  collectors  of  those 
counties  were  therefore  directed  to  take  this  currency  for  taxes  if  the  bank 
would  pledge  itself  to  redeem  the  same  in  November,  in  the  notes  of  Sjjecie 
paying  banks.  The  collectors  were  to  take  oath  that  they  had  not  obtained 
this  currency  by  exchange.  A*  ...  j  same  time  the  Treasurer  was  directed  to 
present  the  notes  of  the  Huntsville  Bank  in  the  treasury  to  that  bank  and 
demand  payment.  If  it  refused,  he  was  to  sue  it.  The  Governor  declared 
its  charter  annulled,  in  February,  1825.*  The  indulgence  to  the  Planters' and 
Merchants'  Bank  proved  vain  and  it  also  failed. 

A  charter  for  a  Bank  of  the  State  of  Alabama  was  enacted,  December  21, 
1820;  $2  millions  capital,  half  by  the  State.  It  never  went  into  operation, 
presumably  because  the  private  capital  could  not  be  subscribed.  December 
20,  1823,  another  act  for  a  Bank  of  the  State  was  passed,  with  this  preamble: 

•  ;8  Niles,  34. 


i,\TA 


LIQUIDATION  IN  THE  MISSISSIPPI  l^ALLEY. 


•  65 


"Whereas  it  is  deemed  highly  important  to  provide  for  the  safe  and  profitable 
investment  of  such  public  funds  as  may  now  or  hereafter  be  in  the  possession 
of  the  State,  and  to  secure  to  the  community  the  benefit,  as  far  as  may  be, 
of  an  extended  and  undepreciating  currency."  This  bank  differed  from  the 
one  projected  in  1820  in  that  it  was  purely  a  State  concern  and  had  no 
private  stockholders.  It  had  no  specified  amount  of  capital.  The  faith  and 
credit  of  the  State  were  pledged  to  make  good  deficiencies  and  losses,  and 
the  various  funds  and  permanent  revenues,  either  belonging  to  the  State,  or 
under  its  care,  were  put  into  it;  so  that  it  was  to  "bank  "  upon  them  for  its 
own  interest,  instead  of  investing  them.  The  proceeds  of  the  school  lands 
from  the  federal  Government  were  to  go  into  its  capital,  and  the  State  was  to 
guarantee  to  the  State  University  its  funds,  paid  into  the  bank,  not  exceeding 
$100,000.  The  federal  three  percent,  fund  was  also  placed  in  it,  the  dividends 
on  which  were  appropriated  to  roads  and  canals;  also  the  lands  assigned  by 
the  United  States  for  the  seat  of  government,  and  the  revenues  from  leases  of 
salt  springs;  furthermore  all  escheats  and  other  perquisites  of  the  State.  Six 
per  cent.  State  stock  was  to  be  issued  in  aid  of  the  capital  of  the  bank,  and 
all  the  public  funds,  not  pledged  to  the  capital  of  the  bank,  were  pledged  for 
these  bonds.  No  single  loan  was  to  exceed  $2,000,  and  the  debts  were  never 
to  exceed  twice  the  capital.  The  Legislature  was  to  elect  annually  a  presi- 
dent and  twelve  directors.  It  was  to  last  until  1845,  make  annual  statements, 
be  inspected  by  the  Comptroller  as  often  as  he  saw  fit,  and  report  to  him 
monthly  upon  his  demand.  The  lowest  denomination  of  its  notes  was  $1, 
and  they  were  receivable  by  the  State.  A  peremptory  process  of  collection  in 
thirty  days  was  provided  for  it.  Its  loans  were  to  be  apportioned  between 
the  counties  in  proportion  to  their  representation  in  the  General  Assembly. 

In  April,  1824,  the  notes  of  northern  and  eastern  Banks  were  at  26  to 
28  premium  in  Alabama,  and  the  notes  of  Kentucky  banks  at  30 
discount.  In  November,  the  president  of  the  Bank  of  the  State  brought  to 
Mobille  §100,000  in  specie,  obtained  by  the  sale  of  the  six  per  cent,  stock  at 
New  York,  and  an  Alabama  newspaper  said  that  the  bank  would  go  into 
operation  with  upwards  of  $200,000  capital  on  hand,  "the  prayers  and 
predictions  of  the  Shylocks,  the  shavers,  the  skinflints,  and  screw-drivers  to 
the  contrary,  notwithstanding  ;"*  from  which  we  infer  that  the  capitalists  of  the 
State  had  disapproved  of  the  enterprise  and  predicted  its  failure.  December 
24th,  the  Bank  of  the  State  was  authorized  to  issue  post  notes,  payable  to 
order,  in  specie,  having  not  over  one  hundred  and  twenty  days  to  run. 
January  2,  1826,  it  was  provided  by  law  that  the  Legislature  should,  at  each 
session,  appoint  a  committee  to  investigate  and  examine  the  bank  under  an 
injunction  of  secrecy.  January  12th,  the  bank  was  ordered  to  be  removed 
to  Tuscaloosa.  January  13th,  the  injunction  of  secrecy  on  the  report  of  the 
Committee  of  Investigation  was  removed,  and  the  report  was  ordered 
published.     A  statement  of  ti^.e  affairs  of  the  bank,  perhaps  taken  from  this 


%\\ 


•V 


*  26NiIes  200. 


m 


A  HISTOR  Y  OF  BANKING. 


m^M  1 


HI. 

in 

i  ' 

rflff'' 

^\W 

:  '-/I . 

1 

\l: 

Met 

t>         . 

w 

1 

IV  Iv 

1 

report,  was  as  follows:  capital,  $213,646;  circulation,  $273,507;  deposits, 
$164,735;  loans,  $448,859;  specie,  $141,330.* 

In  the  autumn  of  1826,  a  rumor  became  current  that  the  Bank  of  the 
United  States  was  about  to  establish  a  branch  in  the  State.  Governor  Murfee 
wrote  to  Biddle,  stating  that  Alabama  had  established  a  bank  system  of  her 
own,  with  which  she  was  very  well  satisfied,  and  asked  a  postponement  of 
the  plan  to  establish  a  branch  until  the  Legislature  of  the  State  could  express 
its  views  on  that  matter.  Biddle  answered  that  a  branch  at  Mobile  was 
required  for  the  purposes  of  the  federal  Treasury ;  that  the  Bank  would  be  of 
great  benefit  to  Alabama,  and  that  it  never  did  any  harm  to  solvent  banks, 
although  firmly  resolved  to  perform  its  great  duty  of  maintaining  a  sound 
currency. 

The  Mobile  and  Tombeckbee  Banks  were  resisting  the  attempt  of  the 
State  to  tax  them,  as  all  banks  maintained,  at  this  time,  that  they  could  not 
be  taxed  if  the  power  had  not  been  reserved  in  their  charters.  The  State 
was  suing  them,  but  offered  to  release  them  from  all  penalties  if  they  would 
pay  the  arrears,  interest,  and  costs,  and  $500  to  the  State  solicitor  for 
prosecuting  the  suits. 

A  special  subject  of  difficulty  in  Alabama  arose  from  the  question  who 
should  fix  the  salaries  of  the  officers  of  the  Bank  of  the  State.  In  the  charter, 
the  president  and  directors  were  to  do  so;  but  a  law  of  January  9,  1827, 
assumed  this  power  to  the  Assembly.  Frequent  acts  were  passed  in  the 
next  fifteen  years,  dealing  with  this  subject.  The  directors  were  free  from 
jury  and  militia  duty. 

In  the  case  of  Alabama,  also,  no  sooner  has  the  Bank  of  the  State  been  in 
operation  a  few  years,  than  we  meet  with  legislation  to  enforce  the  recovery 
of  its  loans  (January  15,,  1828),  and  also  to  correct  improper  acts  of  the 
directors  of  the  bank,  and  to  maintain  due  discipline  over  it.  January  14, 
1828,  the  directors  of  the  Bank  of  the  State  were  ordered  not  to  buy  any  real 
estate,  except  to  secure  debts  due  the  bank.  No  single  loan  was  to  exceed 
$5,000,  and  two  endorsers  were  required  on  each  note,  each  of  whom 
would  be  good  for  the  whole.  The  legislative  committee  on  the  bank  was 
authorized  to  send  for  persons  and  papers.  At  this  time,  also,  the  Governor, 
Comptroller,  and  Treasurer,  with  the  president  of  the  bank,  as  a  Board,  were 
authorized  to  issue  certificates  of  stock  of  the  State  at  six  per  cent.,  for 
twenty  years,  to  the  amount  of  $100,000.  and  sell  them  if  they  could  get  par 
for  them,  in  order  to  increase  the  capital  01  :he  bank.  As  the  Tombeckbee 
Bank  failed  in  1827,  there  were  now  no  banks  in  the  State,  except  the 
Mobile  Bank  and  the  Bank  of  the  State. 

In  1828  there  was  no  local  bank  in  operation  in  Kentucky,  Indiana,  Illinois, 
or  Missouri,  and  only  one  each  in  Tennessee  and  Mississippi.  The  United 
States  Bank  was  doing  an  extensive  business. 


*  JO  Niles,  137. 


^ii 


^1- 


CHAPTER  XI. 

The  National  Bank  and  the  Local  Banks  Co-ordinated  into  a 

New  System. 


§  /. — Local  'Banks  on  the  Atlantic  Coast  from  the  Liquidation   of  i8ig- 
1822  until  the  Bank  Expansion  Produced  by  the  Bank  War. 

JHE  panic  of  1819,  with  the  wide-spread  bankruptcy  of  the  banks 
having  passed  away,  the  isolated  cases  of  bank  failure,  which 
nearly  always  involved  fraud  or  folly  in  some  great  degree, 
attracted  very  great  attention.  In  1823,  the  Bank  of  the 
Northern  Liberties  of  Philadelphia  failed.  The  overdrafts  were 
nearly  equal  to  its  capital.  The  Bank  of  Hudson  failed,  the  loans  to  its 
officers  being  $143,794,  of  which  $100,000  was  uncollectible.  The  State 
Bank  at  Trenton  failed  in  1825,  having  $92,400  capital,  and  $339,238  debts. 
It  refused  its  own  notes  as  an  offset  to  a  judgment,  but  after  some  litigation 
was  forced  to  allow  it.* 

Massachusetts. — The  Suffolk  Bank  was  chartered  in  1818.  It  was 
"required  to  appropriate  one-tenth  of  its  whole  funds  to  loan  to  citizens  of 
the  Commonwealth,  residing  out  of  Boston,  engaged  in  agriculture  or  man- 
ufactures, in  sums  not  less  than  one  hundred  or  over  five  hundred  dollars, 
with  interest  annually,  these  loans  to  be  secured  by  mortgage."  "The 
State  was  at  liberty  to  subscribe  for  an  increase  of  stock  equal  to  one-half  of 
the  paid  up  capital ;  to  appoint  a  pro  rata  proportion  of  directors ;  and  to 
borrow  at  any  one  time  any  sum  not  exceeding  ten  per  cent,  of  the  capital 
of  the  bank,  payable  at  any  time  short  of  five  years,  at  five  per  cent,  interest; 
and  its  total  liability  to  the  bank  was  limited  to  20  per  cent,  of  the  capital."! 
A  committee  of  this  bank  to  take  into  consideration  the  subject  of  country 
notes  reported,  February  24,  18 19,  "That  it  is  expedient  to  receive  at  the 
Suffolk  Bank  the  several  kinds  of  foreign  money  which  are  now  received  at 
the  New  England   Bank,  and  at  the  same  rates.     That  if  any  bank  will 


i      1''    }■  I 


""•i.-l 


:<i! 


♦  jg  Niles,  20,  7},  211. 


t  Whitney  ;  Suffolk  Bank,  4. 


i68 


A  HISTORY  OF  BANKING, 


s'.\ 


deposit  with  the  Suffolk  Bank  $s,ooo  as  a  permanent  deposit,  with  such 
further  sums  as  shall  be  sufficient  from  time  to  time  to  redeem  its  bills  taken 
by  this  bank,  such  bank  shall  have  the  privilege  of  receiving  its  own  bills  at 
the  same  discount  at  which  they  are  purchased."  "That  should  any  bank 
refuse  to  make  the  deposit  required,  the  bills  of  such  banks  shall  be  sent 
home  for  payment  at  such  times  and  in  such  manner  as  the  directors  may 
hereafter  order  and  direct." 

The  Bangor  Bank  failed  in  1822,  having  a  large  circulation  at  Boston. 
"Some  say  that  there  has  been  first-rate  swindling  in  this  affair,  which  is 
likely  enough.  It  is  estimated  that  before  the  failure  of  this  bank,  the  people 
of  New  England  had  suffered  a  loss  of  more  than  $1.3  millions  by  the  failure 
of  country  banks."* 

The  difficulties  with  the  country  notes  continued,  although  they  had 
been  reduced  in  amount  during  the  years  1820-1824.  "The  money  thus 
exchanged  was  partly  received  back  by  the  issuing  banks,  at  the  same  dis- 
count at  which  it  was  sold  here  by  persons  who  had  received  it  at  par,  they 
making  the  whole  profit  of  the  discount,  and  was  put  again  into  circulation 
by  them  at  oar;  part  was  purchased  at  the  discount  for  the  purpose  of  pay- 
ing shopkee|.  ers,  tradesmen  and  marketers,  by  rich  men  and  others  who 
received  their  income  in  Boston  money,  and  who  thus  made  an  ignoble 
profit  by  making  their  payments  in  a  currency  baser  than  they  would  con- 
sent to  receive;  and  part  was  occasionally  carried  home  to  the  issuing 
banks  for  redemption,  by  brokers  who  were  compensated  for  the  trouble 
and  expense  by  the  premium  paid  in  the  exchange."! 

"After  the  New  York  banks  had  adopted  (1824)  the  measure  of  receiving 
country  bills,  and  among  others  those  of  the  Connecticut  banks,  at  par, 
Connecticut  money  became  a  convenient  and  profitable  remittance  from  this 
city  [Boston]  to  New  York,  and  in  consequence  came  into  demand  at  a  dis- 
count of  a  half  per  cent.,  while  other  current  bills  remained  here  at  one  per 
cent.  This  state  of  things  threatened  to  withdraw  the  Connecticut  bills 
from  their  forced  circulation  here,  and  to  leave  their  place  to  be  occupied  by 
those  of  this  State  [Massachusetts],  New  Hampshire  and  Maine.  To  avoid 
this  misfortune,  and  to  aid  in  1  egulating  more  to  its  own  advantage  the  cir- 
culation of  this  city,  one  of  the  banks  of  Connecticut  actually  made  a  deposit 
of  $50,000  in  one  of  the  banks  of  this  city,  for  the  term  of  one  year,  without 
interest,  to  induce  that  bank  to  undertake  the  measure  of  receiving  all  cur- 
rent money  at  a  half  per  cent,  discount.  In  consequence  of  this  measure  of 
the  Connecticut  bank,  and  of  some  competition  which  it  produced,  the  dis- 
count was  soon  after  reduced  to  a  quarter  per  cent."| 

On  the  first  Suffolk  Bank  scheme,  the  associated  banks  contributed 
$300,000  in  their  notes  in  proportion  to  their  capital.  This  was  a  fund  for 
taking  up  the  foreign  notes  received  by  all,  redeeming  them  in  those  notes 
in  the  proportion  of  the  subscription,  and  sending  them  home.     The  specie 


•  22  Niles,  ,'05. 


tHale;  Banks  and  Currency  of  the  United  States,  ii. 


X  Hale,  18. 


LOC/IL  BANKS  ON  THE  ATLANTIC  COAST.  1820-32. 


l6q 


replaced  the  fund.*  This  business  was  commenced  May  24,  1824.  "The 
country  banks  naturally  were  very  much  excited  and  loud  in  their  opposi- 
tion. They  felt  that  the  result  must  be  the  curtailment  of  their  circulation, 
and  the  necessity  of  keeping  a  larger  specie  reserve.  In  derision  they  called 
the  associated  banks  the  'Holy  Alliance,' and  some  dignified  the  Suffolk 
Bank  with  the  title  of  the  'Six  Tailed  Bashaw,'  but  they  soon  became  con- 
vinced that  a  promise  to  pay,  printed  on  the  face  of  a  bank  note,  meant  a 
promise  to  pay  in  specie  on  demand."  To  the  complaints  the  Suffolk  Bank 
replied  that  they  thought  it  "unnecessary  to  make  any  remark  upon  the 
right  which  one  corporation  has  to  demand  of  another  the  payment  of  its 
just  debts,"  which  was  a  very  pertinent  reply,  since  the  complaints  were  a 
noteworthy  revelation  of  the  strange  perversion  of  mind  which  reigned  in 
the  banks,  in  respect  to  the  difference  of  obligation  of  debts  to  the  bank  and 
from  the  bank. 

Within  two  years,  the  business  grew  very  rapidly  and  took  a  somewhat 
different  shape. 

"The  general  arrangement  made  with  the  New  England  banks,  which 
opened  an  account  with  the  Suffolk  Bank  for  the  redemption  of  their  bills, 
was  as  follows:  Each  bank  placed  a  permanent  deposit  with  the  Suffolk 
Bank  of  $2,000  and  upward,  free  of  interest,  the  amount  depending  upon  the 
capital  and  business  of  the  bank.  This  sum  was  the  minirnum  for  banks 
with  a  capital  of  $100,000  and  under.  In  consideration  of  such  deposit  the 
Suffolk  Bank  redeemed  all  the  bills  of  that  bank  which  might  come  to  it  from 
any  source,  charging  the  redeemed  bills  to  the  issuing  bank  once  a  week,  or 
whenever  they  amounted  to  a  certain  fixed  sum ;  provided  the  bank  kept  a 
sufficient  amount  of  funds  to  its  credit,  independent  of  the  permanent 
deposit,  to  redeem  all  of  its  bills  which  might  come  into  the  possession  of 
the  Suffolk  Bank;  the  latter  bank  charging  it  interest  whenever  the  amount 
redeemed  should  exceed  the  funds  to  its  credit;  and  if  at  any  time  the  excess 
should  be  greater  than  the  permanent  deposit,  the  Suffolk  Bank  reserved  the 
right  of  sending  home  the  bills  for  specie  redemption.  As  soon  as  the  bills 
of  any  bank  were  charged  to  it,  they  were  packed  up  as  a  special  deposit, 
and  held  at  the  risk  and  subject  to  the  order  of  the  bank  issuing  them.  In 
payment  the  Suffolk  Bank  received  from  any  of  the  New  England  banks, 
with  which  it  had  opened  an  account,  the  bills  of  any  New  England  bank  in 
good  standing  at  par,  placing  them  to  the  credit  of  the  bank  sending  them 
on  the  day  following  their  receipt."! 

In  1826,  there  was  great  stringency  of  the  money  market  in  New 
England ;  the  rate  of  discount  at  Boston  being  from  one  and  one-half  per 
cent,  to  two  per  cent,  a  month.  This  was  charged  by  some  to  the  Suffolk 
Bank  system.  Specie  was  moving  about  quite  actively  on  account  of  the 
necessary  steps  to  set  that  system  in  operation.  J 

In  182b,   a  Regulation   was  adopted  of  passing  money  received  at  the 


m  ti 


♦  Whitney.  14. 


+  Whitney,  19. 


+  28  Niles,  16}, 


■'J 


V:      I 


170 


//  HISTORY  OF  BANKING. 


banks  to  the  credit  of  the  depositor  only  at  the  expiration  of  ten  days  from 
the  date  of  deposit.  "It  is  now  only  the  regular  depositors  at  the  eight 
allied  banks  who  have  the  privilege  of  exchanging  country  bills  for  Boston 
at  par.  Even  the  Savings  Bank  receives  only  Boston  money  in  deposit,  and 
all  payments  to  the  seven  other  Boston  banks,  and  to  the  United  States 
Bank,  are  required  to  be  made  in  Boston  or  United  States  money."* 

The  oppression  of  the  allied  banks  of  Boston  was  so  keenly  felt  that  a 
convention  was  called  of  stockholders  of  country  banks,  at  Boston,  January 
16,  1826,  to  take  measures  to  crush  the  Boston  alliance  by  means  of  a  more 
formidable  one.  This  convention  recommended  its  constituents  to  with- 
draw their  deposits  from  the  Suffolk  and  to  arrange  for  redemption  amongst 
themselves  so  as  to  lessen  their  circulation  in  Boston. 

Under  the  old  system,  those  banks  had  gained  the  most  which  were 
farthest  from  Boston,  because  it  was  harder  to  send  their  notes  home,  while 
those  country  banks  which  were  near  at  hand  and  whose  notes  could  easily 
be  returned,  gained  the  least.  The  effect  of  the  Suffolk  system  was  to  put 
the  latter  comparatively  in  a  much  better  position.  Their  support  probably 
insured  the  success  of  the  system. 

it  is  evident  that  the  great  gains  of  the  Suffolk  system,  when  it  was  in 
full  operation,  came  from  the  fact  that  it  exploited  the  ignorance  of  the 
country  bankers,  who  were  over-issuing  on  accommodation  paper,  falling  in 
debt  to  the  Suffolk  Bank,  fearing  its  power  and  hating  it.  it  did  not  really 
keep  them  sound,  but  let  them  go  wrong  only  to  a  certain  point,  holding 
them  by  a  cord  and  making  them  pay  for  the  indulgence,  f  Appleton  said, 
in  1831,  that  the  gain  to  the  Boston  banks  by  the  Suffolk  system  was  largely 
lost  by  the  increase  of  banks  in  the  country,  yet  near  to  Boston,  which  had 
gained  the  most  by  it.  As  time  went  on,  the  system  was  extended  until  it 
embraced  nearly  all  New  England,  and  held  the  notes  of  that  region  very 
nearly  uniform.  There  was,  however,  always  friction  in  it  between  the  city 
and  country  banks,  t 

Rhode  Island. — In  1826,  it  was  stated  that  nearly  one-third  of  the  capital 
of  the  Rhode  Island  banks  was  loaned  to  directors  and  other  stockholders. 
This  accounted  for  the  small  proportion  of  notes  in  circulation.  §  There 
were  forty-three  banks  in  the  State,  which  was  more  than  one  for  every  two 
thousand  souls.  || 

Connecticut. — In  1825,  some  New  York  speculators  took  up  the  charter 
of  the  Derby  Bank,  which  had  wound  up  and  gone  out  of  existence,  and  put 
about  $80,000  of  notes  bearing  its  name  in  circulation.  It  then  failed.  The 
failure,  however,  which  has  remained  the  most  fai.  ous  in  southern  New 
England  was  that  of  the  Eagle  Bank  at  New  Haven.  It  had  loans  outstanding 
of  $2  millions,  of  which  $1.7  millions  were  bad,  being  in  the  hands  of  a  single 
firm.  The  liabilities  were  $1.5  millions,  nearly  all  for  circulation,  and  the 
assets  were  only  $300,000  on  a  liberal  valuation.     The  notes  were  quoted  at 


*  Hale,  20.  (1826.) 


t  See  Whitney,  37;  1  Bankers'  Magazine,  79. 
%  Hale,  8. 


X  Gouge;  Journal  of  Banking,  351. 
I  28  Niles,  238. 


LOC/iL  BANKS  ON  THE  ATLANTIC  COAST.  1820-J2.       171 

50  cents  on  $1.  The  president  was  arrested  and  imprisoned,  but  lie  com- 
promised and  was  released.*  There  was  a  clause  in  the  charter  of  this  bank, 
of  the  kind  mentioned  above.f  that  various  ecclesiastical  and  educational 
societies  might  at  any  time  subscribe  shares  at  par,  with  their  funds,  which 
shares  should  not  be  transferable,  but  should  be  withdrawable  on  six  months' 
notice.  In  the  first  case  of  trouble,  of  course,  the  question  arose  whether  these 
were  deposits  or  shares  in  the  capital,  invc'.ving  the  question  whether  the 
owners  were  debtors  or  creditors  in  bankruptcy.  In  the  case  of  the  United 
Society  againstthe  Eagle  Bank,  J  it  was  held  that  the  society  could  not,  after  the 
insolvency  of  the  bank,  withdraw  its  shares  or  recover  the  amount  as  a  debt 
of  the  bank.  Its  position  was  that  of  a  stockholder.  The  case  of  the  Bishop's 
Fund  vs.  the  Eagle  Bank,§  involved  the  same  point.  The  Eagle  Bank  had 
also  $80,000  or  $90,000  deposited  by  the  New  Haven  Savings  Bank,  "all  the 
money  which  it  had  received,"  at  four  per  cent,  interest.  An  attempt  to 
break  down  the  special  assignment  in  favor  of  the  Savings  Bank  failed,  f 

New  York. — The  scandals  which  had  occurred  in  theState  of  New  York  in 
connection  with  legislative  charters  for  banks  led  the  Constitutional  Conven- 
tion of  1 82 1  to  put  a  provision  in  the  Constitution  that  a  two-thirds  vote  of 
both  Houses  should  be  required  to  incorporate  a  bank.  This  provision 
proved  entirely  useless  for  its  purpose.  It  only  made  it  necessary  to  take 
more  comprehensive  and  elaborate  measures  when  attempting  to  secure 
charters,  and  strengthened  the  monopoly  of  note  issue  in  the  hands  of  the 
existing  banks.i" 

In  1824  the  charter  of  the  Chemical  Bank  of  New  York  was  connected 
with  great  political  and  legislative  corruption.  It  was  also  mixed  up  with 
the  election  of  that  year.**  The  lobbyists  of  the  bank  were  indicted  for  using 
improper  means  to  affect  legislation. ff  Forty-seven  charters  were  applied 
for  in  New  York  in  1824.  Niles  said,  "  It  is  to  be  feared  that  we  are  getting 
mad  again."  There  were  seventeen  banks  and  forty  insurance  companies 
already.  Jl 

There  was  great  prosperity  at  New  York.  Three  thousand  new  buildings 
were  being  erected. §§  In  the  spring  of  1825  the  exchange  with  England 
showed  that  our  currency  was  as  good  as  theirs  and  our  mint  was  reported 
well  supplied  with  bullion  silver  and  foreign  coin.||||  There  was  abundance 
of  capital,  the  stock  of  the  Morris  Canal  and  Banking  Company  was 
subscribed  at  Philadelphia  twenty  times  over,  and  that  of  the  Blackstone 
Canal  at  Providence  three  times  over.^l 

In  1825,  the  banks  of  New  York  City  agreed  no  longer  to  accept  on 
deposit  the  notes  of  country  banks  which  did  not  keep  a  deposit  and  an 
account  with  them.  The  "Evening  Post"  said  that  the  city  banks  had, 
within  twelve  months,  been  at  the  expense  of  sending  home  $23  millions  of 
country  bank  notes  for  redemption;  they  had  suffered  losses  by  the  Eagle 


*  J9  Niles,  151,  364  ;  34  Niles,  315.  t  Page  42. 

II  6  Connecticut,  253.  1  i  Hammond,  337. 

tX  26  Niles,  268.  §S  27  Niles,  5. 


^  7  Connecticut,  456.  (1829.)  J  Ibid. 

..  ,  u — ™„„j    .-o  ++ 27  Niles,  57. 


♦•  2  Hammond,  178. 
ill  27  Niles,  391. 


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A  HISTORY  OF  BANKING. 


IH 


Bank  of  Nr-w  Haven,  from  not  having  persisted  in  sending  its  notes 
home.* 

In  January,  1836,  the  applications  for  charters  in  New  York  City  included 
twenty-seven  banks  with  a  capital  of  $22, 500,000,  thirty-one  other  companies 
with  a  capital  of  $14,300,000,  thirty-six  country  banks  with  a  capital  of 
$13,200,000,  thirty-nine  other  companies  with  a  capital  of  $5,400,000,  and 
fourteen  additional  companies  with  a  capital  of  $5,500,000.!  A  year  later 
there  was  a  legislative  investigation  of  alleged  bribery  and  lobbying.  J 

In  order  to  escape  the  stringency  of  the  New  York  law,  several  banks 
were  also  set  up  in  New  Jersey  opposite  New  York,  in  order  to  do  business 
there.  In  i8?5-6,  a  number  of  these  failed  on  account  of  more  or  less  reck- 
less or,  as  was  alleged,  dishonest  banking.  The  two  banks  on  Nantucket 
failed.  They  were  one  of  Jacob  Barker's  jobs.§  It  was  another  scheme  for 
playing  off  banks  at  a  distance  against  each  other. 

In  January,  1826,  occurred  the  failure,  at  New  York,  of  the  Marble  Manu- 
facturing Company,  which  had  been  founded  by  one  Malapar,  a  French 
oyster-house  keeper.  He  ran  away,  but  we  hear  that  he  was  admitted  to 
the  poor-house  in  1834.  ||  In  July  there  was  a  grand  bank  explosion  at  New 
York  with  trials  for  conspiracy.  A  large  number  of  the  companies  which 
had  been  started  in  the  preceding  years  were  proved  to  be  swindles.  Two 
of  the  accused  were  sentenced  to  imprisonment  for  two  years  and  two 
others  for  one  year,  but  a  year  later  the  Supreme  Court  quashed  the 
indictments  for  irregularity. T  The  New  Hope  Delaware  Bridge  Company  is 
a  good  specimen  of  one  class  of  companies  which  were  in  fashion  at  the 
time.  It  had  a  charter  for  buildihg  a  bridge  across  the  Delaware  river,  with 
perpetual  banking  privileges,  dating  from  1812.  The  company  failed  in  1821 
and  their  property  was  put  in  tne  hands  of  a  receiver  in  1824.  In  1825  they 
issued  new  notes  and  failed  again  in  1826.  We  hear  of  them  again,  however, 
as  making  large  issues  of  notes  which  were  worth  six  to  twelve  cents  on 
the  dollar.** 

A  law  of  December  3,  1827,  enacted  that  the  charter  of  every  corporation 
that  should  thereafter  be  granted  by  the  Legislature  should  be  subject  to 
alteration,  suspension,  and  repeal. 

Two  pamphlets  on  banking  were  published  at  this  time,  which  are 
worth  noticing  on  account  of  the  influence  they  had  on  public  opinion  and 
probably  on  legislation.  McVickarfl  maintained  that  banks  were  not  nec- 
essary to  support  credit  or  supply  currency.  Credit  supports  banks,  not  vice 
versa.    Law  cannot  regulate  credit.    The  present  system  of  banks  is  "  in  too 

*  29  Nilcs,  179. 

1 29  Nile*,  114. 

t  Lift  of  SUa*  Wright,  67. 

|a9NU<s,275. 

IjoKilcs,  aJ7;46Niks,  301. 

^  LUe  of  Jicob  Barker,  aoi. 

**  Mtckeiiuic,  Lives  of  Butler  and  Hoyt,<9;  JoKHm,  411.  In  ■848theGovemorofN(wJerwy  was  trying  to  get  the 
Attorney-general  Inatructcd  to  proceed  against  this  company.  It  had  notes  out  for  9iao,ooo,  aU  illegal,  had  ftiled  three  or 
four  times,  and  had  never  had  any  capitaL    (a  Bankers'  Mag.,  501,  509,  51a) 

ft  HinU  on  BankiTig. 


e 


LOCAL  BANKS  ON  THE  ATLANTIC  COAST.  1S20-32.       173 

many  of  its  features,  a  dark  and  disgraceful  picture."  Contraction  is  a  policy 
by  whicii  banks  save  themselves  and  ruin  the  community  aftet  leading  it 
into  error.  The  great  fault  of  the  banks  is  that  they  are  not  founded  on  real 
capital.  He  proposed  a  system  of  free  banking,  the  capital  to  be  invested 
in  stocks,  etc. ;  th*?  andamental  idea  of  the  free  banking  law  of  i8j8.  In 
"A  Peep  into  the  Banks,"  the  anonymous  author  criticized  adversely  a 
project  which  was  then  proposed  for  a  Bank  of  the  State.  "The  time  was," 
he  says,  "when  to  get  a  bank,  it  was  thought  necessary  to  have  money  to 
put  in  it;  now  men  get  a  bank  charter  for  the  contrary  reason, — because 
they  have  no  money  and  want  some.  Fools  and  knaves  in  their  individual 
transactions  obtain  Ittle  or  no  credit,  bjt  when  congregated  by  a  legislative 
act,  have  too  frequently  been  invested  in  the  eyes  of  humble  but  honest  and 
industrious  mechanics  with  a  dignity  and  importance  that  have  been  alike 
ruinous  to  the  possessor  and  beholder." 

By  an  act  of  April  2,  1829,  in  accordance  with  a  recommendation  of  Gov- 
ernor Van  Buren,  the  safety  fund  system  of  banking  was  established  in  New 
York.  There  were  forty  banks  whose  charters  were  about  to  expire.  In  a 
work  on  "Banks  and  Banking  in  the  State  of  New  York"  by  A.  C.  Flagg, 
the  system  is  said  to  have  been  imitated  from  a  combination  of  the  Hong 
merchants  in  China  for  mutual  support.  Hammond  says*  that  it  was 
invented  by  Joshua  Foreman.  The  notes  were  not  to  exceed  twice  the 
capital  paid  in,  and  loans  were  not  to  exceed  two  and  a-half  times  the  cap- 
ital. Each  bank  was  to  put  in  the  hands  of  the  Treasurer  of  the  State  annu- 
ally one-half  of  one  per  cent,  of  its  capital  stock  until  it  had  paid  three  per 
cent,  of  its  capital.  The  fund  thus  constituted  was  to  be  used  to  pay  the  circu- 
lation and  other  debts  of  any  one  of  the  included  banks  if  it  should  become 
insolvent,  and  if  the  fund  was  thus  diminished,  it  was  to  be  restored  by  pro 
rata  payments  as  before.  After  the  three  per  cent,  fund  was  constituted, 
the  accumulations  were  distributed  amongst  the  contributing  banks,  unless 
the  insolvency  of  some  of  them  drew  the  fund  down  below  its  normal 
amount.    The  banks  were  thus  to  be  compelled  to  watch  each  other. 

Experience  quickly  developed  two  great  faults  in  this  system;  the 
responsibility  of  the  safety  fund  for  all  the  debts  of  the  bank,  and  the  rating 
of  the  contribution  to  the  fund  on  the  capital  and  not  on  the  circulation. 
Isaac  Bronson  touched  the  weak  point  of  it,  saying:  "But  it  is  not  per- 
ceived how  the  Commissioners  of  the  safety  fund  are  to  have  any  influ- 
ence in  preventing  all  the  banks  in  the  State  from  suspending  payment 
at  once."  All  the  banks,  he  thought,  would  continue  to  issue  paper,  as  in 
the  past,  if  the  exchanges  should  continue  favorable,  and  if  there  were  no 
restraints  by  a  national  bank.f  This  was  exactly  what  happened.  Gallatin, 
in  his  Essay  of  1841,  made  the  following  criticism:  "The  a.mual  tax  of  one- 
half  per  cent.,  imposed  under  the  name  of  'a  safety  fund,'  is  unjust  towards 
the  banks  which  are  well  administered,  and  injurious  to  the  community  at 


m 


II 


I 


! 


•  Vol.  II.,  p.  »97. 


t  Letter  to  •  Member  of  CongrcM,  i8}a. 


•74 


A  HISTORY  OF  BANKING. 


♦,»• 


'Si' 


large.  To  make  a  bank  responsible  for  the  misconduct  of  another,  some- 
times very  distant,  and  over  which  it  has  no  control,  is  a  premium  given  to 
neglect  of  duty  and  to  mismanagement,  at  the  expense  of  the  banks  which 
have  performed  their  duty  and  been  cautiously  administered.  That  pro- 
vision gives  a  false  credit  to  some  institutions,  which,  not  enjoying  perfect 
confidence,  would  not  otherwise  be  enabled  to  keep  in  circulation  the 
same  amount  of  notes;  and  it  therefore  has  a  tendency  unnecessarily  to 
increase  the  amount  of  paper  money.  The  fund  would  be  inadequate  in 
case  of  any  great  failure ;  and  it  provides  at  best  only  against  ultimate  loss, 
and  not  at  all  against  the  danger  of  a  general  suspension.'"** 

The  New  York  City  banks  opposed  the  scheme  because  it  would  reduce 
them  to  the  level  of  the  country  banks,  and  they  refused  at  first  to  come 
into  the  system,  but  afterwards  did  so.  The  number  of  banks  with  which 
it  started  in  1829  was  thirty-one.  Contributions  were  first  made  to  the  fund 
in  183 1.  There  were  three  Bank  Commissioners  to  supervise  the  system  and 
report  on  it  annually  to  the  Legislature.  The  Governor  appointed  one 
Commissioner  with  the  consent  of  the  Senate.  The  banks  in  the  southern 
part  of  the  State  named  the  second  and  the  other  banks  the  third. 

The  first  number  of  the  New  York  "Sun,"  September  3,  1833,  is  a  sheet 
of  four  pages,  eleven  by  nine  inches  in  size.  One  column,  that  is  one- 
twelfth  of  the  whole  paper,  is  taken  up  with  a  list  of  banks  in  and  near 
New  York  City,  with  a  statement  of  their  standing.  On  the  whole  the 
showing  is  not  very  bad,  but  we  may  see  what  interest  such  information 
had  for  all  the  people  of  that  time  and  how  important  it  must  have  been  for 
merchants  and  others  to  study  this  column. 

In  Pennsylvania  the  act  of  March  22,  18 17,  prohibited  under  a  penalty 
the  issue  of  any  notes  or  tickets  for  less  than  $5  except  by  banks  duly 
authorized,  and  also  prohibited  any  bank  to  issue  such  notes  after  the  ist  of 
October  following,  thus  withdrawing  a  privilege  which  had  been  granted 
December  28,  18 14.  Small  notes,  however,  came  in  from  Delaware,  New 
Jersey,  and  New  York.  The  attempt  to  forbid  these  notes  was  frustrated 
from  a  fear  that  if  they  were  excluded  the  people  would  have  no  money.f 

On  account  of  the  lack  of  small  notes  the  Bank  of  North  America  was 
allowed,  in  1825,  to  issue  I's  and  2's  "on  the  best  paper. "J  Niles  timidly 
proposed  that  some  Maryland  bank  should  be  allowed  to  do  the  same.  A 
month  later  he  complained  of  the  flood  of  small  notes. 

In  the  early  part  of  this  century,  as  we  have  already  seen,  all  the  opera- 
tions of  banking  were  carried  on  with  great  secrecy.  ' '  A  Friendly  Monitor  " 
writing  in  1819,  said  that  he  had  found  great  difficulty  in  obtaining  infor- 
mation about  the  Bank  of  the  United  States.  "Ifl  ask  a  director,  the  seal  of  his 
finger  is  significantly  impressed  on  his  lips.  There  is  a  species  of  masonry 
in  banking  which  to  a  certain  extent  is  highly  proper  and  necessary.  It 
implies  a  mutual  pledge  among  the  directors  that  nothing  shall  be  divulged 


•  3  Writings,  4J3. 


t  Raguet ;  Currency  and  Banking,  129. 


t  29  Niles,  177. 


L0C/1L  BANKS  ON  THE  ATLANTIC  COAST.  1820-32.        175 

which  may  be  prejudicial  to  the  interests  of  the  bank."  The  banks  of 
Pennsylvania  made  no  regular  returns  to  the  Legislature  until  after  18 17. 
Then  annual  accounts  were  published,  but  for  many  years  before  1833  the 
Banks  of  Pennsylvania  and  North  America  had  made  no  return.* 

The  forty  banks  which  had  been  chartered  in  1814  sought  a  renewal  in 

1823,  but  in  vain.  They  were,  however,  all  re-chartered  in  the  following 
year.  By  a  law  of  Pennsylvania,  in  1823,  every  note  of  the  Camden  Bank  in 
New  Jersey  was  made  liable  to  forfeiture  in  Pennsylvania,  the  one  who 
tendered  it  to  pay  the  costs. 

On  account  of  the  scarcity  of  money  there  were  loud  demands  for  a 
national  currency,  t 

One  of  the  most  elaborate  statutes  of  this  period  to  try  to  prevent  the 
suspension  of  specie  payments  by  the  banks  was  enacted  in  this  State  in 

1824.  If  payment  in  specie  was  refused  the  noteholder  was  to  have  six  per 
cent,  interest  for  three  months,  when  he  must  make  a  new  demand.  If 
refused  he  was  to  have  interest  for  another  three  months  and  so  on.  The 
cashier  or  president  was  bound  to  endorse  the  date  of  refusal  on  the  note,  or 
he  became  liable  to  the  holder  for  the  sum  of  $25.  "  Upon  the  refusal  to  pay, 
after  three  months  from  the  first  refusal,  it  shall  be  lawful  for  the  holder  to 
make  application  to  any  Judge  of  any  Court  to  allow  him  or  her  to  make 
proof  of  said  refusal,  on  oath  or  affirmation,  by  one  or  more  disinterested 
witnesses,  whose  duty  it  shall  be  to  give  at  least  ten  days'  notice  to  the 
president  or  cashier  of  such  bank,  in  order  that  an  opportunity  may  be 
afforded  for  rebutting  the  same.  If  the  facts  be  substantiated,  it  shall  be  the 
duty  of  the  said  Judge  to  reduce  the  same  to  writing  and  transmit  it  to  the 
Governor,  who  shall  issue  proclamation  declaring  the  charter  forfeited.  After 
the  tenth  day  of  the  proclamation  the  charter  shall  be  absolutely  null  and 
void."  "  In  case  of  suspension  it  shall  not  be  lawful  for  such  bank  to  issue 
its  own  notes,  except  to  claimants  of  deposit  moneys,  or  make  any  new  loan, 
until  said  bank  shall  pay,  in  gold  or  silver,  its  obligations.  If  sufh  note  be 
issued,  the  directors  shall  be  liable,  each  in  his  individual  capacity  to  pay  the 
amount  thereof." 

At  length,  April  12,  1828,  small  notes  were  prohibited  by  law  in  Pennsyl- 
vania, and  the  prohibition  appears  to  have  been  more  effectual  than  it 
generally  was  in  other  places.  After  some  struggle,  the  small  notes  of  the 
neighboring  States  were  excluded  and  silver  came  into  use.| 

The  new  Constitution  of  Delaware,  1831,  required  a  two-thirds  vote  for 
the  passage  or  renewal  of  any  act  of  incorporation,  with  a  reserved  power  of 
revocation  by  the  Legislature;  and  such  acts  could  only  run  for  twenty 
years. 

Maryland. — The  banks  of  Baltimore  adopted  a  resolution,  September  7, 
1820,  to  withdraw  all  notes  under  $5  and  to  allow  no  small  notes  to  circulate.§ 
As  a  condition  of  a  renewal  of  their  charters,  in  1822,  they  agreed  to  build 


f 


:i 


'^  m 


'  Gouge,  Jounul  ot  Banking  405. 


t  24  NilM,  389. 
{  19  Niles,  17.      ,. 


t  Raguet,  last  ciUtion. 


pap 


) 


1 .  1 

I 


»»• 


lii- 


176 


A  HISTORY  OF  BANKING. 


a  piece  of  the  Cumberland  road,  about  ten  miles  long,  the  only  part  which 
was  lacking  between  Baltimore  and  Wheeling.* 

An  earnest  effort  was  made  in  Maryland,  at  the  session  of  1829-30,  to 
establish  a  Bank  of  the  State;  but  it  was  defeated  in  the  House,  46  to  2}.\ 

North  Carolina. — After  the  stress  of  the  war  passed  away,  the  difficulties 
of  the  State  finance  ceased.  In  1820,  there  was  a  surplus  in  the  treasury 
which  the  Treasurer  was  directed  to  invest  in  bank  stock.  In  1823,  a  further 
issue  of  treasury  notes  was  ordered  to  the  amount  of  $100,000,  in  denomin- 
ations of  five  to  seventy-five  cents,  receivable  for  dues  to  the  State.  It 
appears  that  they  were  not  needed  for  State  expenses,  so  it  was  provided 
that  they  should  be  issued  in  exchange  for  specie  or  bank  notes,  which  was 
to  be  expended  for  bank  stock ;  so  that  the  State  manufactured  and  sold  a 
State  paper  issue,  in  order  to  buy  bank  stock.  In  1834,  the  Treasurer  was 
directed  to  invest  his  balances  in  bank  stock  until  otherwise  ordered,  or  until 
a  bank  should  be  established  on  funds  of  the  State.  In  the  following  years 
dividends  on  bank  stock  appear  in  the  revenue  of  the  State.  In  1828,  the 
Treasurer  bought  stock  in  the  Bank  of  the  State  at  90  and  in  the  Cape  Fear 
and  Newbern  Banks  at  80.  He  reported  in  that  year  that  $106,469  in  treasury 
notes  had  been  burned,  out  of  the  $262,000  which  had  been  issued  in  1814, 
1816,  and  1823,  as  above.  He  said  that  those  still  out  were  very  ragged  and 
dirty.  In  the  same  year  commissioners  were  appointed  to  vote  on  the  State 
shares  m  the  banks.  They  were  instructed  by  law  "  not  to  give  their  consent 
to  any  proposition  or  regulation  for  the  too  rapid  reduction  of  the  debts  to 
said  banks,  or  to  the  too  sudden  winding  up  of  the  affairs  thereof; "  also  to 
inquire  and  report  on  what  ttrms  the  existing  banks  would  merge  in  another 
bank  to  be  made.  During  the  first  part  of  1828,  North  Carolina  notes  were  at 
from  five  to  twelve  and  one-half  discount  at  Philadelphia.  The  South  and 
Southwest  were  flooded  with  them.  J  This  state  of  things  appears  to  have  led 
to  a  special  investigation  by  a  legislative  committee  at  the  session  of  1 828-9. § 
Raguet  says  that  the  banks  of  North  Carolina  had  long  refused  specie  pay- 
ments. "A  law  was  proposed  but  not  enacted  which  has  induced  them  to 
call  in  their  issues,  the  commencement  of  which  has  produced  such  an  alarm 
throughout  the  State  that  the  grand  jury  in  several  counties  have  recom- 
mended a  special  call  of  the  Legislature  in  order  to  prevent  a  measure  which 
they  have  the  folly  to  believe  will  ruin  the  whole  people.  "|| 

The  Committee  of  1828-9  declared  that  the  banks  made  usurious  con- 
tracts, lending  depreciated  paper  to  be  repaid  with  specie  funds,  and  that 
they  purchased  their  own  notes  at  a  depreciation.  The  Bank  of  the  State 
put  out  its  own  notes  in  the  purchase  of  cotton,  and  at  one  time  they 
adopted  a  rule  that  any  one  who  demanded  specie  must  take  an  oath  that  he 
was  not  a  broker.  It  is  in  evidence  that  the  Bank  of  the  State  has  made 
false  statements  to  the  Legislature  of  the  amount  of  specie  on  hand.  It 
counted  under  that  head  stock  of  the  United  States  Bank,   which  it  had 


I 


*  aa  NUcs,  179. 


t  37  Niln,  41a.  i  34  Niles,  1)4. 

I  I  Free  Trade  Advocate,  303. 


{  See  pages  45,  85. 


LOCAL  BANKS  OS'  THE  ATLANTIC  COAST.  i8x>-j2.       177 

bought  in  violation  of  its  charter.  The  amount  of  actual  specie  now  in  the 
Bank  of  the  State  is  certainly  not  $1,000.  This  bank  is  now  considering 
whether  it  will  not  wind  up.  It  holds  the  notes  of  the  people  for  more  than 
$5,000,000.  They  proposed  that  the  Attorney-general  should  be  instructed 
to  institute  a  judicial  inquiry  into  the  conduct  of  the  banks,  but  it  does  not 
appear  to  have  been  done.* 

The  Bank  of  the  State  declared  two  and  a-half  per  cent,  dividend;  the 
Bank  of  Cape  Fear  four  per  cent.,  and  the  Bank  of  Newbern  four  per  cent, 
for  the  year  1828.!  At  the  session  of  1829-30,  the  State  Treasurer  was 
directed  to  call  for  returns  from  all  the  banks,  as  to  the  debts  of  directors  and 
stockholders,  and  the  amount  of  stock  notes  then  due.  The  statement  of  the 
Bank  of  Newbern,  in  January,  1829,  showed  cash  liabilities  $961,041 ;  cash 
assets $11 5,768.  The  bills  receivable  were  $1,427,216.  In  a  note,  itisstated 
that  this  report  is  as  correct  as  can  be  made,  on  account  of  the  confused  state 
of  the  books.  The  accounts  of  the  late  cashier  were  under  investigation. 
The  defalcations  of  all  persons  in  positions  of  trust  during  this  entire  period 
constitute  •'  social  feature.  Some  States  carried  ^long,  as  an  appendix  to 
their  session  laws,  a  list  of  persons  through  whose  hands  public  money  had 
passed,  and  who  had  failed  to  return  it.  The  accountability  which  is  a  test 
and  guarantee  of  all  financial  affairs  grew  up  very  slowly,  and,  in  the  early 
part  of  the  century,  was  extremely  weak.  The  lackof  it  wentfarto  account 
for  the  calamities  of  banks.  The  great  banks  In  the  southern  and  south- 
western States  furnished  lamentable  proofs  of  the  effects  of  a  want  of  it. 

Acts  were  passed  to  enable  the  Bank  of  the  State,  the  Bank  of  Newbern, 
and  the  Bank  of  Cape  Fear  to  wind  up  "gradually,  and  to  fix  a  uniform  rate 
of  collection." 

The  new  Bank  of  the  State  of  North  CarolinaJ  redeemed  the  issues  of  the 
Bank  of  the  State,  with  which  we  have  been  acquainted  up  to  this  time, 
and  of  the  Bank  of  Newbern. §  The  affairs  of  the  old  Bank  of  the  State  were 
closed  in  1837,  a  dividend  of  six  per  cent,  being  awarded.!  The  dividends 
on  the  State  stock,  in  the  Bank  of  the  State  and  the  Bank  of  Newbern,  were 
employed  in  retiring  the  treasury  notes,  which  were  burned;  but  in  1836, 
$50,887.75  of  them,  of  the  issues  of  1814,  1816,  and  1823,  were  reported 
still  outstanding,  f 

South  Carolina. — The  charters  of  the  State  Bank  and  the  Bank  of  the 
*  State  of  South  Carolina  were  extended  December  21,  1822,  for  twelve  years, 
each  to  pay  a  bonus  to  the  State  of  $20,000.  The  Dorchester  Free  School 
was  authorized  to  pay  all  its  funds  into  the  Bank  of  the  State;  the  profits  on 
the  same  to  be  paid  by  the  bank  to  the  commissioners  of  Dorchester.  The 
Bank  of  Hamburg  was  chartered  in  1822  to  last  until  1837,  and  the  Bank  of 
Cheraw  in  1824,  to  last  until  1836. 

There  appears  to  have  been  some  difficulty  in  the  Bank  of  the  State,  in 


ri 


iv   >1 


iai 


I', 


*  R«guet;  Currency  and  Binking,  1 1>;  Gouge;  Journal  of  Hanking,  334. 
t  See  page  aj8.  %  Treasury  Report,  January  4,  1837. 

^  Session  Laws,  i8)&;  Appendix  15. 

{A 


+  Session  Laws.  iS39-)o,  99. 
i  I  Raguet's  Register,  135. 


'\\    ' 


178 


A  HISTORY  OF  BANKING. 


V    '  1 

I     I 

i 


1824,  when  a  committee  was  appointed  to  investigate  it  and  report  whether 
there  had  been  any  mismanagement.  Perhaps  as  a  consequence  of  this, 
private  stockholders  were  allowed  to  be  admitted  by  a  law  of  December  20, 
1826.  Commissioners  were  to  be  appointed  to  value  the  existing  assets, 
which  the  State  should  make  equal  to  $1.2  millions;  individuals  might  sub- 
scribe $1.6  millions,  paying  $20,000  bonus  on  each  million.  The  charter 
was  to  be  extended  until  1848,  but  after  1840  the  State  might  withdraw  its 
capital.  The  next  year  another  law  was  passed  for  the  same  purpose ;  but 
either  the  plan  failed  or  the  opponents,  who  wanted  the  bank  to  remain  a 
purely  State  institution,  prevailed;  for  the  act  was  repealed  December  19, 
1828. 

One  Billis,  having  altered  a  note  of  the  Ban''  of  the  State,  pleaded  on 
his  trial  that  it  was  a  bill  of  credit.  Tht  Supreme  Court  of  the  Slate  decided 
to  the  contrary,  laying  stress  on  the  fact  that  the  bank  had  a  real  capital  on 
the  credit  of  which  the  notes  were  drawn.*  A  debt  to  this  bank  was  held 
not  to  be  a  debt  to  the  State  having  such  priority  as  a  debt  to  the  State 
would  have.f 

Georgia. — The  Committee  on  Banks  reported  in  1824  that  all  the  banks 
were  sound.  The  same  report  was  repeated  a  year  later  by  a  committee 
which  had  been  examining  them  during  the  recess,  but  they  added  that 
there  were  not  banks  enough,  for  which  reason  the  notes  of  out-of-State 
banks  circulated.  December  20,  the  Marine  and  Fire  Insurance  Company 
of  Savannah  was  incorporated  with  banking  privileges,  and,  December  24, 
the  Bank  of  Macon,  with  $300,000  capital  on  which  the  State  had  an  option 
of  $50,000;  to  last  until  1850. 

By  Joint  Resolution  of  May  31,  1825,  it  was  ordered  that  the  Treasurer 
should  take  Darien  notes  in  all  payments  to  the  State,  They  were  then  at 
fifteen  or  twenty  per  cent,  discount.! 

A  law  of  December  22,  1826,  provided  that  if  any  bank  or  broker  should 
collect  the  notes  of  any  bank  and  present  them  for  redemption,  not  more 
than  four  per  cent,  interest  should  be  paid  on  them.  If  any  one  who 
demanded  specie  was  suspected  of  being  the  agent  of  any  bank,  he  might 
be  put  to  oath,  and  if  he  acknowledged  that  he  was  such,  he  could  obtain  only 
four  per  cent,  per  annum  on  the  amount  he  held.  Individuals,  except  bro- 
kers or  their  agents,  were  to  have  the  same  rights  as  hitherto.  The  charter 
of  the  Bank  of  Augusta  was  extended  December  22,  1826,  until  1850,  and 
the  capital  might  be  increased  to  $600,000.  The  charter  of  the  Marine  and 
Fire  Insurance  Company  was  amended  December  24,  1827,  so  that  if  its 
notes  were  presented  for  redemption  by  any  bank,  it  might  redeem  them 
with  the  notes  of  that  bank ;  and  that  its  branches  might  be  compelled  to 
take  only  each  its  own  notes.  December  26th,  the  Merchants'  and 
Planters'  Bank  of  Augusta  was  chartered ;  capital,  $300,000;  $20,000  at  the 
option  of  the  State.     This  charter  contained  a  new  provision  similar  to  tl. at 


*  1  McCord,  13.    (1822.) 


t  3  McCord,  377.    (1825). 


%  29  NUes,  99. 


. .■v^*i'.'.-^'.-''.:f^ir^^^'-i:  '■''  ^^^4 1  -^ i.*^*'' •  * '^'i^ji'^ 


LOC/iL  BANKS  ON  THE  ATLANTIC  COAST,  1820-jx       179 

which  was  common  in  Connecticut,*  that  any  religious,  charitable,  or  lit- 
erary institution  incorporated  by  the  State  might  deposit  not  more  than 
$50,000  and  have  scrip  for  it  at  par  of  the  stock,  entitling  it  to  dividends  on 
the  same  terms  as  the  stockholders.  If  it  was  desired  to  sell  this  stock,  it 
must  first  be  offered  to  the  bank  at  the  price  paid  for  it.  This  bank  was  to 
last  until  1858. 

The  Committee  on  Finance  reported,  December  32,  1826,  that  the  cash 
balance  in  the  treasury  of  the  State  was  $792,122.  Of  this  $390,301  was  in 
notes  of  the  Bank  of  Darien.  November  21,  1827,  the  same  Committee 
recommended  the  acceptance  of  an  offer  by  the  Bank  of  Darien,  to  pay  in 
notes  such  as  were  receivable  at  the  treasury,  $75,000  each  half  year  until 
its  notes  in  the  jtreasury  were  redeemed.  The  amount,  December  i  ith,  had 
been  reduced  about  $100,000;  the  remainder  was  sealed  up  in  six  packages 
of  varying  amount,  and  left  with  the  Treasurer.  In  1826,  the  notes  of  the 
State  Bank  of  Georgia  were  quoted  at  Philadelphia  at  four  discount ;  at  the 
end  of  the  year  they  were  a  little  worse  than  the  other  Georgia  notes,  t 

The  Central  Bank  of  Georgia  was  another  attempt  to  construct  a  great 
Bank  of  the  State,  as  an  improvement  on  the  existing  bank  which  bore  that 
title.  It  was  incorporated  December  22,  1828,  and  founded  on  the  funds  of 
the  State.  The  surplus  in  the  treasury,  the  shares  owned  by  the  State  in 
the  Planters'  Bank,  Bank  of  Augusta,  of  the  State,  and  of  Darien,  with  all 
the  credits  and  unliquidated  claims  of  the  State  were  put  in  the  capital. 
The  directors  were  to  collect  all  these,  but  were  to  give  extensions  to  the 
debtors  of  the  State  such  as  were  customary  on  accommodation  paper. 
The  revenue  from  taxes  and  dividends  was  to  go  into  the  bank;  the  Gover- 
nor to  appoint  three  directors,  each  of  whom  was  to  give  $100,000  bonds, 
and  the  cashier  the  same;  to  discount  notes  of  two  or  nore  endorsers; 
debts  not  to  exceed  the  capital;  to  last  until  1840;  all  accommodation  notes 
to  be  renewed  every  six  months,  six  per  cent,  interest  being  paid  in 
advance.  The  directors  "shall  loan  as  much  money  upon  accommodation 
paper  as  the  interest  and  safety  of  said  bank  will  permit,"  and  not  call  for 
more  than  20  per  cent,  per  annum  on  these  loans  unless  the  exigencies  of  the 
bank  require  it.  The  directors  were  to  prepare  notes  as  soon  as  they  should 
be  appointed,  and  to  draw  on  the  Governor  for  the  expense;  they  were  to 
"distribute  their  loans  as  equally  as  practicable  among  the  citizens  of  this 
State,  having  due  regard  to  the  population  of  the  different  counties;"  maxi- 
mum loan  to  be  $2,500;  never  to  issue  more  than  the  aggregate  it  possessed 
of  the  notes  of  other  chartered  banks  of  the  State  and  United  States  Bank 
notes  and  specie ;  to  take  no  note  for  collection ;  to  be  suable.  There  was 
no  provision  for  redemption  of  the  notes.  By  an  amendment  to  this  charter, 
December  19,  1829,  it  was  provided  that  debtors  to  the  State  for  land  might 
have  their  notes  discounted  in  this  bank,  and  upon  filing  with  the  Surveyor- 
general  a  certificate  of  the  cashier  "that  his  said  debt  has  been  fully  settled 


•  See  page  42. 


t  Elliot's  Funding,  1 1 16. 


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A  HISTORY  OF  BANKING. 


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by  note  or  notes,"  such  debtor  may  demand  of  the  Governor  such  a  title  as 
he  wouM  have  obtained  on  full  compliance  with  the  original  contract.  In 
the  Central  Bank  of  Georgia  is.  Little,*  It  was  decided  that  a  debt  to  this 
bank  was  not  on  general  principles  such  a  debt  to  the  public  as  would  have 
priority  of  payment  from  a  decedent's  estate,  but  the  Legislature  could  give 
priority  to  debts  to  the  bank  and  it  had  done  so  by  the  charter.  As  to  the 
li'nk,  the  State  had  divested  itself  of  its  sovereign  character.  "Bills  of 
credit  *  *  *  are  such  as  are  drawn  or  issued  by  the  State  upon  the  gen- 
eral credit  thereof,  without  the  appropriation  of  any  specific  fund  for  the 
payment  or  ultimate  redemption  of  such  bills." 

It  appears  that  the  notes  of  the  Darien  Bank  lying  in  the  treasuryf  were 
amongst  the  assets  which  were  delivered  to  the  Central  Bank.  The 
contract  with  the  Darien  Bank  that  it  should  pay  $75,000  every  six  months 
was  re-affirmed,  and  the  Central  Bank  was  forbidden  to  demand  more, 
December  22,  1829.  A  Legislative  committee  had  reported,  at  the  begin- 
ning of  this  session,  in  November,  that  the  Darien  Bank  was  sound  again ; 
that  its  notes  were  at  par,  having  recovered  from  great  depreciation ;  and 
that  it  had  emitted  new  notes,  which  it  was  fully  within  its  power  to 
redeem.  All  the  other  banks  were  also  reported  to  be  in  fine  condition.  A 
report  was  also  made  on  the  Bank  of  the  State  of  Georgia,  which  dealt 
chiefly  in  complimentary  commonplaces,  as  indeed  all  the  other  reports 
about  banks  at  this  session  did;  but  the  following  passage  occurred  in  it: 
"The  Bank  of  the  United  States,  wielding  an  immense  capital,  with  powers 
more  dangerous  and  Imposing  than  ever  were  intended  to  be  granted  by 
the  State,  has  and  will,  during  its  corporate  existence,  have  a  blighting 
influence  on  the  State  institutions,  which  will  be  felt  as  that  influence  is 
used  by  those  who  direct  its  operation  and  regulate  its  intercourse  with 
the  State  institutions."  This  appears  to  show  that  the  friction  of  1820  had 
left  an  enduring  inflammation  behind. 

A  heavy  fine  was  laid  on  the  issue  of  notes  under  $1,  November  25, 
1830.  All  previous  penalties  which  had  been  laid  were  remitted  if  the 
issuers  would  make  tax  returns  and  pay  taxes  on  their  capital. 


In  March,  1828,  there  were  said  to  be  excessive  exports  of  specie. 
"Gold  has  disappeared."  The  banks  were  in  distress,  but  dray-loads  of 
specie  were  coming  into  Baltimore,  or  rather  passing  through,  for  three 
hundred  thousand  dollars'  worth  of  it  is  said  to  have  been  sent  on,  and  Niles 
reckoned  up  seven  hundred  and  fifty  thousand  dollars,  "  which  New  York 
has  gathered  to  herself  within  a  few  days,  the  whole  of  which  is  probably 
on  its  way  to  England. "J  He  tried  to  connect  all  this  with  the  tariff,  espe- 
cially as  it  affected  wool,  but  he  had  recorded,  just  before,  the  fact  that  there 
was  a  loss  on  all  the  dollars  brought  from  Valparaiso  and  that  it  would  have 


•  II  Georgia,  346.  (1852). 


t  ?tf  page  179. 


i  >4  Niles,  J5. 


LOC/IL  B/tNKS  ON  THE  ATLANTIC  COAST.  1820-32. 


181 


been  profitable  rather  to  bring  wool  and  sell  it  at  cost,  if  there  had  been  no 
duty.*  He  always  used  the  importation  or  exportation  of  specie  as  an  indi- 
cator of  prosperity  or  the  reverse.  He  was  now  compelled  to  change  his 
argument,  which  he  did  by  saying  that  the  exportation  of  specie  proved 
that  there  was  no  reciprocity  in  trade.  The  Americans  worked  for  specie- 
only  to  send  it  to  England. f  The  Baltimore  Bank  would  take  only  notes 
which  were  depositable  in  New  York  and  Philadelphia. t  There  was  a 
great  stringency  in  money  and  fall  in  prices.  The  auctions  were  said  to  be 
crowded  with  goods  from  England.  With  exchange  at  in  and  discount 
rates  high,  United  States  Bank  stock  advanced,  being  used  probably  as  a 
remittance. §  In  October  of  1830  specie  was  flowing  into  the  United  States 
in  abundance.  It  was  being  exported  from  England  both  to  the  United 
States  and  to  the  Continent.  ||  In  January,  i8ji,  the  influx  of  specie  had 
become  an  incumbrance.  The  banks  did  not  have  room  in  which  to  keep 
it.i"  Niles  says  that  this  is  the  good  result  which  he  had  promised,  yet  he 
states  that  the  Baltimore  banks  would  not  pay  the  cost  of  bringing  silver 
from  Philadelphia  to  get  it.  Capital  was  plentiful.  He  puts  the  specie  in 
the  banks  of  the  United  States  at  thirty  million  dollars,  besides  ten  million 
dollars  in  circulation.**  In  April  he  says  that  great  sums  have  been  sent  to 
the  United  States  for  investment,  through  the  Bank  of  the  United  States,  on 
account  of  apprehensions  in  Europe. ft  In  October  we  find  him  complaining 
once  more  that  money  is  very  scarce  among  all  who  depend  on  bank 
accommodation,  and  that  six  or  seven  millions  of  dollars  have  lately  departed 
for  England.  Prices  are  falling  under  forced  sales.Jt  In  1831  the  Bank  of 
England  exported  specie  and  curtailed  its  circulation. §§  In  February,  1832, 
there  are  complaints  of  a  great  stringency  of  money  and  exportations  of  spe- 
cie with  bankruptcies  because  banking  assistance  is  refused.  There  is  a 
great  contraction  of  the  currency.  |1||  In  the  same  month  McDuffie,  in  a 
report  to  the  House,  said  that  there  was  "not  nearly  enough  money  afloat  to 
meet  the  general  demand  for  it." 

In  the  decade  from  1820  to  1830,  the  banks  of  the  Atlantic  coast  settled 
down  to  a  system  of  circulation  banking.  Out  of  the  troubles  of  the  second 
decade,  some  rules  and  maxims  for  this  kind  of  banking  had  been  developed, 
and  some  men  had  been  trained  by  experience  to  its  methods.  In  fact,  the 
system  of  banking  which  Hamilton  had  introduced  might  be  regarded  as 
now  operating  according  to  his  theory  of  it,  and  the  Bank  of  the  United 
States  was  now  acting  as  a  regulator,  according  to  the  theory.  Gouge,  who 
had  studied  this  system  in  its  operation  more  thoroughly  and  with  more 
intelligence  than  anybody  else,  maintained  that  it  was  a  system  of  alternate 
expansions  and  contractions.  The  years  of  expansion  and  "good  times" 
were  1821,  1824,  1827,  1830-31.  The  years  of  crisis  and  "  hard  times"  were 
1822,  1825,  1828-9,  1832. 

*  34  Niles,  }.  t  34  Nilcs,  35.  }  34  Niln,  139.  {  34  Niks,  100. 

I  39  Nil«»,  105,  174.  1  Th«  New  York  "Journal  of  Commerce "  in  39  Niles,  353. 

•*  39  Niles,  438.  tt  40  Niles,  87.  ^t  41  Niles,  98.  |ii4>  Miln.  379'  ii  4<  Niles,  468. 


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A  HISTORY  OF  BANKING. 


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■i;    I 


That  the  system  should  have  tended  to  these  hents  and  chills  seems  a 
necessary  consequence  of  its  character.  There  was  no  limit  to  the  bank  note 
issue,  except  the  utmost  which  each  bank  could  keep  afloat.  The  specie 
reserve  was  made  as  small  as  the  banker  dared  to  risk.  This  specie  became 
the  vital  nerve  of  the  entire  economic  system  of  the  country.  The  jea.ousy 
with  which  it  was  watched  over  seemed  sometimes  ridiculous  and  some- 
times tragic.  When  things  seemed  prosperous  and  the  exchanges  were 
favorable,  the  banker  put  out  his  circulation.  When  one  did  it,  the  others 
did  it,  and  the  consequence  was  a  general  inflation.  Presently  the  issue 
became  excessive.  The  exchanges  turned  and  a  little  specie  was  shipped. 
Thereupon,  the  vital  nerve  being  touched,  a  shock  went  through  the  entire 
system.  Discounts  were  refused;  loans  could  only  be  obtained  through 
brokers  at  extravagant  rates;  the  circulation  was  contracted  very  suddenly; 
the  commercial  system  was  arrested ;  then  industry  stopped ;  production  was 
reduced ;  wages  were  lowered ;  and  finally  the  farmers,  so  far  as  they  were 
debtors,  were  reached.  This  severe  remedy  operated  a  cure,  and  all  were 
ready  to  begin  again.  This  course  was  not  accomplished,  of  course,  in  its 
complete  round  every  few  months.  The  minor  fluctuations  touched  only  the 
first  mentioned  part  of  the  industrial  organization.  The  greater  ones  pro- 
duced little  crises.  The  banks,  generally  speaking,  sowed  the  storm  and 
left  others  to  reap  the  whirlwind.  Considering  the  fact  that  the  bank  circu- 
lation was  very  strictly  localized,  it  is  possible  that  the  expansions  and 
contractions  may  have  had  that  prompt  effect  upon  prices  which  Gouge, 
Raguet,  and  others  attributed  to  them.  Amongst  the  evil  influences  which 
intensified  the  effects  of  these  methods,  the  usury  law  must  be  put  amongst 
the  very  first.  Nine-tenths  of  the  evil  practices  of  the  banks  were  due  to 
attempts  to  evade  that  law  in  obtaining  rates  which  were  legitimately  theirs 
by  the  operation  of  the  market,*  If  they  had  been  allowed  to  operate  on 
their  discount  rate,  they  would  have  had  less  motive  to  operate  on  the 
amount  of  their  circulation. 

*  Raguet,  Currtncy  and  Banking,  104. 


CHAPTER  XI.— Continued. 


%2.—The  Bank  of  the  United  States  from  Biddies  Accession  until  the 

Bank  IVar. 

Nicholas  Biddle  was  appointed  a  government  director  of  the  Bank  in  i8iq, 
and  was  elected  a  stockholders'  director  in  i8ao.  After  some  contest,  he 
was  elected  president  of  the  Bank  November  25,  1822.  The  struggle  was 
between  two  parties  in  the  Bank, — a  conservative  party,  which  was  satisfied 
with  Cheves's  administration,  and  another  which  wanted  a  more  enterprising 
policy.  The  latter  party  thought  it  bad  policy  to  make  such  a  free 
exposition  of  the  affairs  of  the  Bank  as  Cheves  made  in  his  report  of  1822 
which  was  laid  before  the  triennial  meeting  of  the  stockholders.* 

The  Bank  held  37,9'54  shares  of  its  own  stock;  forfeited  collateral.  Cheves 
considered  this  a  useful  reduction  of  a  capital  which  was  quite  too  large. 
The  strictures  passed  by  him  in  this  report  on  the  operations  of  Smith, 
Williams,  and  Buchanan  called  out  a  protest  from  Williams  which  was  sar- 
castic and  angry ;  but  he  did  not  even  take  up  a  single  one  of  the  allegations 
of  fact.  A  committee  of  the  directors  resolved  that  Cheves  had  "fully  and 
satisfactorily  proved  the  facts  detailed  in  his  statement  of  the  past  and  present 
condition  of  the  Bank." 

Biddle  took  charge  of  the  Bank  in  January,  1823,  when  he  was  only 
thirty-seven  years  old.  He  was  of  a  sanguine  and  poetical  temperament, 
and  it  is  only  fair  to  him  to  emphasize  the  fact  that  he  was  surrounded  and 
urged  on  by  a  party  which  applauded  bold  financiering;  at  least  as  long  as 
they  could  win  under  his  leadership.  Nathan  Appleton,  in  the  retrospect  of 
Biddle's  career,  said  that  it  was  the  opinion  of  those  who  watched  him 
"that  he  was  a  bold  navigator;  that  he  kept  his  ship  under  a  press  of  sail, 
relying  upon  his  skill  in  taking  in  canvas  in  case  of  a  squall;  of  which  he  has 
occasionally  given  us  evidence  himself."! 

When  Biddle  took  charge,  the  circulation  was  $4.3  millions;  the  specie, 


*  See  page  97. 


t  Currency,  17.    (1841.) 


I: 


I  1" 


1 


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1 84 


//  HISTORY  or  BANKING. 


$4.4  millions;  the  public  deposits,  $2.7  millions;  credit  of  public  officers, 
$!.■>  millions;  private  deposits,  %}.}  millions;  loans,  $^0.7  millions;  public 
stocks,  $1 1  millions. 

The  Bunk  had  petitioned  Congress,  in  1818,*  for  an  amendment  to  the 
charter  to  allow  some  other  person  than  the  president  and  cashier  of  the 
piiront  Bank  to  sign  the  notes;  but  the  petition  had  been  refused.  This  labor 
w;is  very  great,  the  circulation  then  being  over  $8  millions.  The  reason  for 
not  letting  any  one  but  the  president  and  cashier  of  the  head  bank  sign  the 
notes  was  that  the  variety  of  signatures  would  make  the  notes  non-uniform, 
which  was  one  of  the  evils  the  bank  was  intended  to  correct.  The  Senate 
authorized  the  appointment  of  special  officers  for  this  duty,  but  the  House 
declined,  chiefly,  as  it  appears,  on  the  ground  that  the  big  Bank  would  get 
"^00  much  power  over  the  local  banks.  Smith  of  Maryland  said  that  the  offi- 
cers could  not  sign  more  than  fifteen  hundred  notes  each  day,  in  view  of  their 
other  duties,  t  The  same  petition  was  renewed  in  1820  and  again  in  1823. 
In  the  latter  petition,  which  was  made  the  subject  of  a  report  of  a  committee 
of  the  House  of  Representatives,  it  was  prayed  that  the  part  of  the  charter 
might  be  changed  which  provided  that  nu  director,  except  the  president, 
should  be  eligible  for  more  than  three  years  in  four;  that  a  law  should  be 
passed  providing  for  the  punishment  of  persons  convicted  of  fraud  on  the 
Bank;  that  the  Board  might  be  authorized  to  appoint  persons  to  sign  notes 
of  the  smaller  denominations  at  the  parent  bank;  that  the  notes  of  the  Bank 
might  be  made  receivable  by  law  in  payments  to  the  United  States  only  at 
the  bank  or  branch  where  they  are  made  payable.  The  committee  reported 
against  the  first  point ;  in  favor  of  the  second  and  third.  In  regard  to  the 
fourth  point,  they  say  that  the  existing  regulation  operates  as  a  practical 
prohibition  to  issue  any  notes  in  the  western  States  and  to  a  like  prohibition 
to  issue  them  to  the  South  during  six  months  in  the  year.  They  propose, 
therefore,  that  this  request  also  be  granted.  The  document  is  in  fact  an 
exposition  of  the  difficulty  in  which  the  Bank  found  itself,  with  branches 
scattered  all  over  the  country,  in  each  district  of  which  there  was  a  strictly 
local  currency,  while  the  notes  of  the  national  Bank  were  to  be  main- 
;  in.d  at  an  equal  value  everywhere.  This  committee  argue  that  if 
iuc  notes  of  the  branches  also  had  only  local  circulation,  specie  would  be 
drawn  and  transmitted  when  the  exchanges  so  required,  and  that  the  expense 
of  this  would  provide  the  required  check  and  guarantee  on  the  transactions. 
No  action  was  taken.  J 

The  liquidation  had  reached  such  a  point,  in  1823,  that  the  currencies  of 
the  different  States  were  all  substantially  equal  on  the  Atlantic  coast,  having 

•  S«e  p«gc  q6. 

t  Gouge,  Jourtul  of  Banking,  187.  Charles  Biddle,  who  w«s  one  of  the  commissionera  to  aign  the  United  States  treasury 
notes  during  the  second  war,  said  that  he  signed  his  name  sometimes  fourteen  hundred  times  in  one  day.  His  maximum 
was  eighteen  hundred.  (Memoir,  340.)  Hugh  McCulloch  says  that  he  signed  his  name  four  thousand  times  a  day,  on 
bank  notes,  as  a  day's  work;  and  that,  kept  up  for  weeks  and  months,  it  was  a  punishment  loo  inhuman  to  be  inflicted 
un  the  most  guilty  criminal.    (Men  and  Meuure*,  i}o.) 

X  4  Folio  Finance,  2E5. 


B/1NK  OF  THE  UN/TED  STATES.  i8aj-2p. 


185 


all  been  brought  to  par.  The  Bank  of  the  United  States  therefore  yielded  on 
the  point  about  receiving  branch  notes;  but  it  is  a  significant  fact  that  those 
notes  of  large  denominations  were  quoted  at  one-quarter  of  one  per  cent, 
discount  at  Philadelphia  in  1824.*  The  usage  of  the  Bank  in  1830  was  to 
redeem  all  its  five's  everywhere,  and  generally  any  small  amount  anywhere. 

It  was  a  trifling  incident,  but  an  unpopular  one,  that  the  Bank  of  the 
United  States,  in  1823,  reduced  the  rating  of  pistareens  from  twenty  cents 
to  seventeen  cents.  It  was  a  necessary  consequence  of  the  restoration  of 
the  currency  to  specie  value. 

The  directors  of  the  Bank  resolved,  December  a,  183^,  to  "operate  in 
exchange."  In  the  next  two  years,  the  active  capital  was  increased  by  the 
sale  of  $3  millions  or  $4  millions  worth  of  stock  which  had  been  forfeited  in 
the  stock  jobbing  operations  of  1818.  In  the  same  years  it  took  government 
loans  of  $10  millions.  Gouge  asserts  that  this  proceeding  brought  it  and  all 
the  other  banks  in  the  country,  in  1825,  to  the  verge  of  suspension.!  It  is 
certain  that  the  crisis  here  preceded  that  in  England  and  was  not  a  direct 
consequence  of  it. 

Raguet  says  that  formerly  the  banks  of  the  United  States  only  discounted 
notes  payable  on  the  spot,  and  if  for  accommodation  they  discounted  a  bill 
payable  at  a  distance,  it  was  done  on  the  same  terms  as  if  on  the  spot,  no 
profit  in  the  way  of  exchange  being  expected.  The  Bank  of  the  United 
States  began  the  business  of  dealing  in  inland  bills  of  exchange,  buying  and 
selling  bills  on  all  points  where  it  had  branches  upon  terms  which  gave  it  a 
profit.  He  regards  this  dealing  as  mischievous  for  reasons  which  are  con- 
nected with  the  expansions  and  contractions  of  the  currency;  that  is,  at 
different  places  the  Bank  makes  money  easy  when  it  wants  to  sell  bills  and 
tight  where  it  wants  to  buy  them.  He  represents  the  Bank  as  trying  to  act 
as  the  arbiter  of  exchange.  This  had  been  claimed  as  a  merit  on  its  pirt  by 
its  friends.  The  suggestion  is  that  the  Bank  creates  and  overrules  the  ex- 
change and  does  not  follow  the  market,  f 

April  9,  1825,  seven  expresses  arrived  at  Philadelphia  from  New  York  in 
one  day  with  news  of  a  great  rise  of  prices  in  the  markets  of  Liverpool  and 
London.  All  prices  advanced,  especially  cotton.  In  July  the  price  of  cotton 
fell  3d.  a  pound  at  Liverpool.  This  produced  a  crisis  in  New  York  with 
many  failures.  "Many  of  the  banks  were  in  great  difficulties.  Several  of 
them  broke,  and  such  were  the  straits  of  ths  United  States  Bank  that  one  of 
the  directors  talked  publicly  on  the  exchange  at  Philadelphia  of  the  expedi- 
ency of  suspending  specie  payments."  Biddle  wrote  that  the  storm  passed 
over  this  country  a  few  weeks  earlier  than  over  England.  He  had  never  felt 
any  uneasiness  about  the  banks  of  this  country  except  on  that  occasion. 
October  1st,  the  government  paid  off  a  loan  of  $7  millions,  nearly  half  of 
which  was  payable  at  Philadelphia,  whereby  the  United  States  Bank  was 
brought  in  debt  to  the  local  banks  of  Pennsylvania  and  New  York.     It  sold 


*  Elliot's  Funding,  1 1 14. 


t  Journal  of  Binlilng,  69. 


t  Currency  and  Banking,  114,  111. 


H 


Ml 


*  !l 


i 


r 

h 


1 


f'ii 


^'!  ; 


1 86 


j4  history  of  banking. 


its  funded  debt  for  nearly  $2  millions,  and  some  bank  stock  besides,  and 
extricated  itself  by  November  1.  Two  circumstances  increased  the  diffi- 
culty :  a  demand  for  specie  for  the  British  army  in  Canada  and  a  demand 
for  specie  to  found  a  bank  at  New  Orleans.  "1  went  immediately  to  New 
York,"  says  Biddle,  "where  I  sought  the  gentleman  who  was  preparing  to 
draw  specie  from  the  banks  of  Philadelphia  in  order  to  send  it  to  New 
Orleans,  and  gave  him  drafts  on  that  city.  These  drafts  were  not  given  to 
protect  the  Bank  itself,  which  was  then  a  creditor  of  the  Philadelphia  banks 
for  more  than  the  amount  of  them,  but  they  were  employed  to  arrest  from 
these  city  banks  a  drain  which  could  not  fail  to  embarrass  them."  He 
declared  that  he  had  met  the  panic  by  an  increase  of  the  loans  of  the  Bank 
at  that  time.* 

The  specie  in  the  Bank  of  the  United  States  in  July,  1821,  was  $5.8  mil- 
lions. It  declined  to  $3.3  millions  one  year  later.  Then  it  increased 
steadily  to  $6.7  millions,  January,  1825.  In  July  it  was  down  to  $4  millions, 
and  in  the  following  January  to  $3.9  millions.f 

In  1827,  the  Bank  renewed  its  petition  with  regard  to  the  compulsion  on 
the  chief  officers  to  sign  the  notes ;  once  more  in  vain.  This  led  to  the 
revival  of  the  use  of  branch  drafts.  They  were  drawn  by  the  cashier  of  any 
branch  on  the  parent  Bank,  to  the  order  of  some  oflRcer  of  the  branch,  and 
endorsed  by  the  latter  to  bearer.  They  then  circulated  like  bank  notes.  At 
first  the  denominations  were  five's  and  ten's.  In  1831,  twenty's  were 
added.  They  were  also  payable  at  the  place  where  issued.  Binney,  Wirt, 
and  Webster  gave  opinions  that  these  drafts  were  legal.  The  Secretary  of 
the  Treasury  approved  of  them  and  allowed  public  dues  to  be  paid  in  them. 
They  were  a  most  unlucky  invention.  Most  of  the  subsequent  real  trouble 
of  the  Bank  can  be  traced  to  them.  Immediately  upon  their  re-introduction, 
the  "race-horse  bills"  reappeared, — that  is,  drafts  drawn  between  the  dif- 
ferent places  where  there  were  branches,  so  that  a  bill  falling  due  at  one 
place  was  met  by  the  discount  of  a  bill  drawn  on  another  place.  The  name, 
which  is  said  to  have  been  invented  by  Cheves,  was  derived  from  the  nim- 
bleness  which  was  required  of  the  drawers  to  keep  up  with  the  system. 
The  device  largely  robbed  the  Bank  of  the  control  of  its  own  business. 

The  receipt  of  branch  drafts  at  New  York  in  1828  was  nearly  $12  millions 
and  in  1829  over  $11  millions.  The  total  receipt  of  them  in  1828  and  1829 
at  Philadelphia,  New  York,  Baltimore,  and  Boston  was  over  $57  millions. 
They  became  the  medium  with  which  the  South  and  West  paid  for  its 
purchases.^  Gallatin  said  of  them  that  they  "are  of  the  same  character, 
depend  on  the  same  security,  and  in  case  of  failure,  would  share  the  same 
fate  with  bank  notes.  Though  not  usually  included  in  the  amount  of  the 
circulation  of  the  Bank,  we  cannot  but  consider  the  average  amount  in 
actual  circulation  as  making  part  of  the  currency  of  the  country.  "§ 

In  December,  1827,  the  Bank  of  the  United  States  was  able,  by  putting 


*  ai  Cong.,  I  S<a.  4  Reports,  460. 


t  Treas.  Rep.,  Jan.  15,  i8}8. 
(  3  Writings,  j6s.    (i8}i). 


t  Gouge ;  Jounul  of  Banking,  396. 


'  1  .. 


BANK  OF  THE  UN/TED  STATES.  1823-29. 


187 


out  its  branch  drafts  to  stop  the  circulation  of  the  notes  of  the  Cape  Fear 
Bank  of  North  Carolina.  To  this  operation  of  the  branch  drafts  Gouge 
attributes  in  part  the  difficulties  of  \\\2%* 

At  the  triennial  meeting  of  the  stockholders,  in  1828,  the  enthusiasm  was 
very  great  over  the  good  management  and  prosperity  of  the  Bank.  The 
increase  of  the  value  of  real  estate  at  Cincinnati  made  it  probable  that  the 
loss  there  would  be  recovered.  The  suspended  debt  was  $7.1  millions. 
The  whole  anticipated  loss  was  $3.  i  millions,  to  meet  which  there  were 
reserves,  etc.,  for  $2.9  millions.  The  domestic  exchange  business  was 
$22  millions,  on  which  the  profits  were  nearly  half  a  million.  The  circula- 
tion was  $13.4  millions;  the  specie  $5.8  millions;  the  loans  $31.5  millions.f 
Commenting  on  this  report,  Niles  said:  "The  Bank  now  appears  devoted 
to  the  purposes  for  which  it  was  instituted,  with  much  steadiness  and  great 
care,  and,  on  that  account,  deserves  well  of  the  country,"  but  he  clung  to 
his  conviction  of  its  unconstitutionality.  He  apprehends  trouble  from  the 
multitude  of  five-dollar  notes  issued  by  the  branches,  many  counterfeits  on 
them  being  already  in  circulation.  These  are  facilitated  by  the  great  num- 
ber of  different  signatures.  The  last  detail  shows  that  he  means  branch 
drafts.  J 

There  was  great  popular  suspicion  and  jealousy  of  the  operations  of 
domestic  exchange  at  this  period.  The  charges  were  thought  to  be  unwar- 
ranted, which  the  Bank  made  for  drafts  between  different  places.  If  the 
great  Bank  secured  through  its  branches,  as  it  appears  to  have  done,  all  the 
internal  exchange  business  of  the  entire  country,  it  would  indeed,  by  prom- 
ising to  pay  everything,  never  need  to  pay  anything,  but  settle  the  whole 
by  bookkeeping  balances.  It  appears  that  it  charged  only  such  rates  as 
might  be  considered  a  commission  for  the  facilities  thus  offered.  The  best 
proof  we  have  of  this  is  in  a  statement  of  the  inconvenience  which  was 
suffered,  and  the  greater  expense  which  was  incurred,  after  it  was  des- 
troyed. §  Wickliflfe  declared  in  the  Senate  of  Kentucky,  in  1838,  that  one 
purpose  of  chartering  the  Southwestern  Railroad  Bank,  was  to  "redeem  the 
trade  of  the  South  and  West  from  the  shameful  brokerage  and  shaving  on 
the  exchanges  practiced  by  the  banks  of  the  South  and  West  since  the  fall 
of  the  United  States  Bank." 

On  the  other  hand  Nathan  Appleton  affirmed  that  "The  late  United 
States  Bank  took  care  to  charge  the  highest  rates  for  exchange  which  the 
alternative  of  transporting  specie  would  admit."  Biddle  acquired  a  very 
thorough  understanding  of  all  the  movements  of  trade  inside  of  the  United 
States.  In  an  Essay  published  in  1828,  he  describes  some  of  these  opera- 
tions: "  A  merchant  borrows  from  the  bank  and  sends  abroad  $100,000  in 
coin  or  he  buys  bills  from  one  who  has  shipped  the  coin.  With  these  he 
imports  a  cargo  of  goods,  obtaining  a  long  credit  for  the  duties,  sends  them 
to  auction  where  they  are  sold,  and  the  auctioneer's  notes  given  for  them. 


V'f'j 


i.  \m 


*  Gouge ;  Jounul  of  Banking,  384. 


t  Anniul  Register,  1817-8^,  I,  577. 
I  See  page*  })8-9. 


t  35  NUes,  37. 


1 88 


A  HISTORY  OF  BANKING. 


i( 


i 


•i' 


m 


Hi  I 


These  notes  are  discounted  by  the  banks,  and  the  merchant  is  then  put  in 
possessionof  another  $100,000  which  he  again  ships  and  thus  he  proceeds 
in  an  endless  circle,  so  long  as  the  banks  by  discounting  his  notes  enable 
him  to  send  the  coin  and  tempt  him  to  do  so  by  keeping  up  prices  here  by 
their  excessive  issues.  The  banks,  therefore,  begin  by  diminishing  or 
withdrawing  these  artificial  facilities,  leaving  the  persons  directly  concerned 
in  this  trade  to  act  as  they  please  with  their  own  funds,  but  not  with  the 
funds  of  the  banks.  The  immediate  consequence  is  that  the  auctioneers 
can  no  longer  advance  the  money  for  entire  cargoes;  that  they  no  longer 
sell  for  credit  but  for  cash;  that  the  price  of  goods  falls;  that  instead  of 
being  sold  in  large  masses  they  are  sold  slowly  and  in  small  parcels,  so  that 
the  importer  is  not  able  to  remit  the  proceeds  in  large  amounts.  This 
diminishes  the  demand  for  bills  and  for  specie  to  send  abroad.  *  *  * 
Time  is  thus  gained  until  the  arrival  of  the  southern  exchange  which  will 
supply  the  demand  without  the  aid  of  coin  and  then  everything  resumes 
its  accustomed  course." 

Upon  this  occasion  it  .suited  the  Bank  to  stand  off  from  the  market,  and 
Biddle  made  the  following  exposition  01  the  policy  which  it  had  pursued. 
As  we  shall  see,  on  other  occasions,  when  it  suited  his  purpose  to  adopt  the 
policy  of  interference  and  paternal  control,  he  found  grounds  for  that  as  good 
as  those  he  here  gives  for  the  let-alone  policy.* 

He  says  that  the  exportations  of  specie  in  the  winter  of  1827-8,  and  the 
imports  of  goods  were  very  large.  The  cotton  bills  were  late  in  coming 
forward,  so  that  the  demands  for  payment  fell  on  the  vaults  of  the  Bank. 
"Such  an  effect  was  to  be  averted  without  loss  of  time.  The  directors 
of  the  Bank  of  the  United  States,  as  was  their  natural  duty,  were  the 
first  to  perceive  the  danger,  and  the  Bank  was  immediately  placed  in  a 
situation  of  great  strength  and  repose."  He  thinks  that  but  for  the  restric- 
tions placed  by  the  Bank  of  the  United  States  on  the  local  banks  the  latter 
would,  within  the  previous  six  weeks,  have  been  brought  to  the  verge  of 
insolvency.  He  says  that  the  people  are  extragavant  and  contract  debts 
imprudently.  "The  Bank  of  the  United  States  is  invoked  to  assume  that 
which  whoever  attempts  deserves  the  ruin  he  will  suffer.  It  is  requested  to 
erect  itself  into  a  special  providence,  to  modify  the  laws  of  nature,  and  to 
declare  that  the  ordinary  fate  of  the  heedless  and  improvident  shall  not  be 
applied  to  the  United  States.  *  *  *  But  if  the  Bank  of  the  United  States 
blends  any  sense  with  its  tenderness,  it  will  do  nothing  of  all  this."  The 
most  remarkable  passage  in  the  essay,  however,  is  the  one  which  describes 
banking  on  a  mixed  currency.  The  writer  was  a  master  of  the  art  he 
described,  and  the  literary  merit  is  so  high  that  the  passage  is  fit  to  be 
incorporated  in  a  text  book  of  the  subject.  "The  law  of  a  mixed 
currency  of  coin  and  paper  is  that  when,  from  superabundance  of 
the    mixed   mass,  too   much   of  the    coin  part  leaves  the  country,    the 


*  See  page  208. 


■!'i 


BANK  OF  THE  UNITED  STATES.  1823-29. 


189 


remainder  must  be  preserved  by  diminishing  the  paper  part,  so  as 
to  make  the  mixed  mass  more  valuable  in  proportion.  It  is  the  capacity 
of  diminishing  the  paper  which  protects  it.  Its  value  consists  in  its 
elasticity ;  its  power  of  alternate  expansion  and  contraction  to  suit  the  state 
of  the  community,  and  when  it  loses  its  flexibility  it  no  longer  contains 
within  itself  the  means  of  its  own  defense  and  is  full  of  hazard.  In  truth,  the 
merit  of  a  bank  is  nearly  in  proportion  to  the  degree  of  this  flexibility  of  its 
means."  If  a  bank  lends  on  long  terms  with  renewals,  its  debts  cannot  be 
called  in  at  once,  while  its  notes  are  payable  on  demand.  "This  is  the 
general  error  of  banks  who  do  not  always  discriminate  between  two  things 
essentially  distinct  in  banking,  a  debt  ultimately  secure  and  a  debt  certainly 
payable."  If  a  bank  which  lends  only  on  short  business  paper  finds  its  coin 
called  for,  it  lends  less  everyday  than  what  is  paid  in.  "The  operation 
proceeds  thus :  by  issuing  no  new  notes,  but  requiring  something  from  your 
debtors,  you  oblige  them  to  return  to  you  the  bank  notes  you  lent  them  or 
their  equivalents.  This  makes  the  bank  notes  scarcer;  this  makes  them 
more  valuable;  this  makes  the  goods  for  which  they  are  generally  exchanged 
less  valuable,  the  debtor  in  his  anxiety  to  get  your  notes  being  willing  to 
sell  his  goods  at  a  sacrifice;  this  brings  down  the  prices  of  goods  and  makes 
everything  cheaper.  Then  the  remedy  begins.  The  foreigner,  finding  that 
his  goods  must  be  sold  so  low,  sends  no  more;  the  American  importer, 
finding  that  he  cannot  make  money  by  importing  them,  imports  no  more. 
The  remainder  of  the  coin  of  course  is  not  sent  out  after  new  importations, 
but  stays  at  home  and  finds  better  employment  in  purchasing  these  cheap 
articles,  and  when  the  foreigner  hears  of  this  state  of  things,  he  sends  back 
the  coin  he  took  away,  *  *  *  We  therefore  get  back  our  coin  by  dimin- 
ishing our  paper  and  it  will  stay  until  drawn  away  by  another  superabun- 
dance of  paper.  Such  is  the  circle  which  a  mixed  currency  is  always 
describing.  Like  the  power  of  steam,  it  is  eminently  useful  in  prudent 
hands,  but  of  tremendous  hazard  when  not  controlled,  and  the  practical 
wisdom  in  managing  it  lies  in  seizing  the  proper  moment  to  expand  and 
contract  it,  taking  care,  in  working  with  such  explosive  materials,  whenever 
there  is  doubt,  to  incline  to  the  side  of  safety."* 

This  is  the  art  of  the  "complete  banker"  of  the  period.  It  describes  the 
bankers  in  full  possession  of  an  "elastic  currency,"  and  manipulating  it  to 
the  full  limit  of  its  capacity  of  vibration.  How  could  any  business  firm, 
which  relied  on  bank  accommodations,  traverse  ten  years  of  it } 

From  1820  to  1826  the  Bank  did  very  little  business  in  New  England, 
New  York,  or  the  South  and  West.  From  1826  to  18^2  it  did  a  very  large 
business  in  the  Mississippi  Valley,  but  still  little  in  New  England  or  New 
Vork.f   After  1832  its  business  was  more  evenly  distributed  over  the  country. 

In  1830,  the  Bank  of  the  United  States  began  to  draw  bills  on  England  to 
be  negotiated  beyond  the  Cape  of  Good  Hope,  thus  diminishing  the  export 


J II 


1;/   ! 


81' 

M 


I 
f 


I 

ill 


I    t 


m 

Slid 


•  National  Gazette,  April  la,  1818. 


t  5  Gallatin's  Writings,  45). 


190 


A  HISTORY  OF  BANKING. 


f> 


\<r' 


of  specie.  This  was  one  of  the  causes  of  the  accumulation  of  silver  here  at 
the  end  of  1829  and  in  1850  and  i8ji.* 

In  the  early  twenties  the  circulation  of  the  Bank  was  $4  millions  or 
$5  millions.  Towards  1830  it  increased  to  $10  millions.  In  July,  1830,  the 
Bank  had  $12.1  millions  in  specie.  Its  usual  full  stock  had  been  between 
$6  millions  and  $7  millions.  In  July,  1831,  it  held  $7  millions,  the  minimum 
of  the  period  at  the  end  of  the  second  decade. 

The  Government  paid  $3  millions  on  its  stock  note  in  the  Bank  in  1830, 
and  the  other  $4  millions  in  1831,  so  that  after  that  it  was  a  holder  for  value. 

It  is  stated  that  the  annual  expense  of  the  Bank  in  1821  was  about 
$joo,ooo;  in  1833,  it  was  put  at  $500,000,  including  all  the  branches,  f 

In  1829  Secretary  Ingham  expressed  great  satisfaction  with  the  way  in 
which  the  Bank  made  transfers  of  public  money,  and  also  with  its  arrange- 
ments for  paying  the  public  debt,  as  he  said,  in  that  year  of  commercial  dis- 
tress, "without  causing  any  sensible  addition  to  the  pressure,  or  even  visible 
effect  upon  the  operations  of  the  State  banks.  "J  In  the  President's  message 
of  the  same  year  he  said,  with  reference  to  the  debt  payment  of  the  previous 
July:  "  It  was  apprehended  that  the  withdrawal  of  so  large  a  sum  from  the 
banks  in  which  it  was  deposited,  at  a  time  of  unusual  pressure  on  the  money 
market,  might  cause  much  injury  to  the  interests  dependent  on  bank  accom- 
modations, but  this  evil  was  averted  by  an  early  anticipation  of  it  at  the 
Treasury,  aided  by  the  Judicious  arrangements  of  the  officers  of  the  Bank  of 
the  United  States."  It  was  indeed  in  operations  of  this  kind  that  Biddle  was 
most  skillful. 

•  Gouge;  Journal  of  Banking,  395. 

t  19  Niles,  269;  Gouge;  Journal  of  Banking,  ia8. 

X  QMotcd  in  tlie  Letter  of  the  Bank  to  the  Committee  on  Ways  and  Means,  Jan.  a8,  183). 


£31 

!<,■  1 ' — uvil  1 

'fi        •. .,•   "vA^'*,, ,»''».'v«, ,  •  ^o^*^  •  , •  '  oV'  •  .     ■■• 

"'      *'^>? ;  LI  ':  'V'? i  U  •.  ^^,-  I .     ''-^>?--       \  t'>'*.. 

y.      •     ■■■''•, '^/Nj  "^ **"•  xi/* .  •   '  • .  1/^  >  • ' ■  ■' •  -o^fv.  •  ■■ -•"' 

1 

PERIOD  IV.— 1829  TO    1845. 


The  War  of  the  Jackson  Administration  on  the  Bank  of  the  United  States 
Breaks  up  the  Existing  System  of  Banks  and  brings  in  Local  Banks 
again  as  Currency-Troviders  and  Fiscal  Agents.  Another  Bank 
Inflation.  Crisis,  and  Liquidation  Ensue.  The  Bank  of  the  State 
Institution  Undergoes  Great  Extension  and  Variation. 


CHAPTER    XII. 

The  Bank  War. 

|HE  opposition  party  which  was  forming  around  Jackson  during 
Adams's  administration,  especially  the  southern  and  western 
wing  of  it,  was  disposed  to  put  opposition  to  the  Bank  of  the 
United  States  on  its  program.  At  the  session  of  1827-8, 
P.  P.  Barbour  brought  forward  a  proposition  to  sell  the  stock 
owned  by  the  United  States  in  the  Bank.  The  debate  which  followed  is 
chiefly  important  as  showing  to  what  an  extent  the  Bank  had  lived  down 
the  evil  reputation  of  its  first  years,  and  how  difficult  it  was  to  start  a  move- 
ment against  it.  The  stock  fell  two  points  when  the  proposition  was  made, 
but  recovered  when  Barbour's  resolution  was  tabled,  174  to  9. 

Jackson  was  inaugurated  March  4,  1829.  The  campaign  had  been  pas- 
sionate and  malignant  on  both  sides,  but  there  was  peace  and  prosperity  in 
spite  of  monetary  stringency.  "The  currency  of  the  country  was  as  sound 
in  the  year  1829  as  may  probably  be  expected  under  any  system  which 
admits  the  substitution  of  paper  for  the  precious  metals."*  The  United 
States  Bank  had  lived  down  its  early  bad  behavior,  and  was  accepted  as 
one  of  the  fundamental  institutions  of  the  country.  It  is  true  that  it  was 
allowed  to  pass  with  reservations  by  many  democratic  politicians  of  the  old 
school,  who  still  denied  its  constitutionality,  but  only  on  dogmatic  grounds. 

*  }  CalUtin's  Writings,  )9o.  (1841.) 


i\.\\ 


(" 


192 


A  HISTORY  OF  BANKING. 


m 


In  the  campaign  of  1824  only  the  faintest  suspicions  of  pohtical  influence 
exerted  by  it  had  found  expression.  When,  however,  in  any  arena  a  power 
is  present  which  might  be  of  decisive  importance  as  an  ally  of  one  party  or 
the  other,  it  is  inevitable  that  its  alliance  will  be  contended  for  by  them. 
Its  efforts  to  remain  neutral  will  be  vain,  and  will  expose  it  to  greater  dan- 
ger from  both  than  an  alliance  with  either.  Either  party  which  thinks  that  it 
has  lost  the  chance  of  winning  the  alliance  will  turn  against  the  intervening 
power  with  fierce  animosity,  and  will  try  to  destroy  it  or  drive  it  from  the 
arena.  This  is  what  happened  in  the  case  of  the  United  States  Bank.  As 
an  ally  it  might  be  of  the  utmost  value  to  either  political  party ;  as  the  ally 
of  an  opponent  it  was  dreaded  and  detested  by  either.  The  federalists  had 
opposed  the  charter  because  the  Bank  was  to  be  organized  under  demo- 
cratic auspices.  By  the  natural  tendency  of  things,  however,  it  had  gravi- 
tated into  the  hands  of  the  capitalist  class.  It  was  enough,  therefore,  for 
the  democrats  to  know:  It  is  not  on  our  side. — Hence  we  find  that  the 
charges  against  it  are  prognostications.  It  is  said  that  it  is  a  dangerous 
power,  that  it  may  win  control,  decide  elections,  defeat  the  will  of  the  peo- 
ple, etc.,  all  of  which  means  that  it  may  defeat  us.  The  conflict  was  there- 
fore irrepressible,  and  the  Bank  war  may  be  held  to  demonstrate  that  a 
national  bank  in  this  country  is  impossible,  because  it  would  be  sure  to 
become  an  object  of  conflict  between  political  parties.  During  the  fifteen 
years  of  political  strife  over  banks,  banking,  and  currency,  which  began  in 
1829,  angry  recriminations  were  often  exchanged  as  to  who  dragged  these 
subjects  into  politics.  Priority  depended  on  the  question  whether  Jackson 
found  the  United  States  Bank,  as  he  said,  active  in  politics  at  his  accession 
or  not.  The  answer  of  history  must  be  that  he  did  not;  that  he  and  his 
followers  provoked  the  conflict,  and  were  responsible  for  it. 

There  was  no  new  element  in  the  Bank  war  of  Jackson's  time.  It  was 
only  a  revival  of  antagonisms  which  we  have  seen  in  play  around  the  Bank 
of  North  America  and  the  first  Bank  of  the  United  States. 

If  Jackson  intended  to  open  a  war  on  the  Bank,  it  is  strange  that  he 
should  have  chosen  a  Pennsylvanian,  Samuel  Ingham,  as  Secretary  of  the 
Treasury.  It  fell  to  the  lot  of  that  gentleman  to  open  the  war  on  the  insti- 
tution, of  which  all  Pennsylvanians  were  especially  proud.  After  the  report 
of  the  Investigating  Committee  on  the  Bank  of  the  United  States,  in  1832, 
he  published  an  apology  for  his  own  action  in  the  matters  which  are  about 
to  be  narrated,  in  which  he  said  that,  soon  after  he  entered  on  the  duties  of 
his  office,  he  heard  the  President  make  frequent  declarations  in  conversa- 
tion which  showed  that  "he  had  imbibed  strong  prejudices  against  the 
United  States  Bank  and  was  distinctly  opposed  to  the  existence  of  that  insti- 
tution," and  that  he  (Ingham)  was  "appealed  to  as  the  head  of  the  depart- 
ment charged  with  official  intercourse  between  the  government  and  the 
Bank  for  protection  against  what  was  termed  the  political  abuses  of  that 
establishment.  It  was  often  stated  to  me  that  the  branches  in  Louisiana  and 
Kentucky  had  grea'ly  abused  their  power  for  political  purposes,  not  only  in 


THE  BANK  ^VAR. 


»93 


elections  for  the  general  government,  but  in  State  elections,  from  whence  it 
was  inferred  that  other  branches  had  done  the  same  elsewhere."  The  speci- 
fication under  this  last  head  was  the  above  mentioned  interference  in  Ken- 
tucky, in  1825,*  which  was  asserted  by  Kendall,  although,  when  he 
endeavored  to  obtain  corroboration  for  it  from  his  informant,  he  failed  to  do 
so.f  The  " Louisville  Advertiser,"  speaking  from  an  inside  knowledge  of 
the  managemement  of  the  old  court  campaign  of  that  year,  contradicted  the 
assertion  that  any  aid  had  been  given  by  the  Bank  of  the  United  States, 
and  the  president  and  seven  out  of  eight  surviving  directors  of  the  Lex- 
ington Branch  published  affidavits  denying  that  their  bank  had  ever  con- 
tributed to  the  funds  of  any  political  party.  This  one  disputed  allegation  of 
fact  was  made  to  bear  a  tremendous  superstructure  of  assertion,  inference 
and  conviction. 

Our  narrative  will  now  follow  the  order  of  events  in  time,  although  the 
facts  were  not  known  to  the  public  until  1832.I 

June  27,  1829,  Levi  Woodbury,  Senator  from  New  Hampshire,  wrote  to 
Ingham  a  confidential  letter,  in  which  he  made  complaints  of  Jeremiah 
Mason,  the  new  president  of  the  Portsmouth,  New  Hampshire,  branch  of 
the  Bank  of  the  United  States;  because,  first,  of  the  general  brusqueness  of 
his  manner  and,  second,  of  his  severity  and  partiality  in  the  matter  of  loans 
and  collections.  He  added  that  Mason  was  a  friend  of  Webster.  "His 
political  character  is  doubtless  known  toyou."§  He  added  that  the  com- 
plaints were  general,  and  while  referring  to  the  fact,  as  a  matter  of  common 
notoriety,  that  all  banks  were  political,  he  said  that  the  complaints  in  this 
case  were  made  by  adherents  of  all  political  parties. 

Ingham  inclosed  this  letter  to  Biddle,  writing:  "The  character  of 
Mr.  Woodbury  justifies  the  belief  that  he  would  not  make  such  a  charge 
upon  slight  or  insufficient  grounds,  and  from  some  expressions  in  his  letter 
it  may  be  inferred  that  it  is  partly  founded  on  a  supposed  application  of  the 
influence  of  the  Bank  with  a  view  to  political  effect."  He  said  that  the 
administration  wanted  no  favors  from  the  Bank.  Public  opinion  in  the 
vicinity  of  a  bank  was  the  best  test  of  the  truth  of  such  charges.  Biddle 
replied  that  he  would  investigate. 

In  his  apology  "To  the  Public,"  in  1832,  Ingham  interpreted  this  first 
letter  of  his  as  follows :  in  transmitting  Woodbury's  letter  he  felt  bound  to  let 
the  Bank  know  "that  some  jealousy  existed  as  to  the  integrity  of  some  of 
their  officers,"  in  order  to  give  them  a  chance  to  make  a  defense  which  he 
could  use  against  those  influential  persons  at  Washington  who  were  pushing 
him  on  to  take  action  hostile  to  the  Bank.  This  is  only  another  way  of 
saying  that  the  purpose  was  to  draw  Biddle  out.  Whether  it  was  from  a 
deep  and  crafty  calculation,  or  only  from  a  fortunate  chance  with  respect  to 


•  See  page  133. 

t42  NUes,  315. 

X  Adams's  Report  with  Documents,  aid  Cong.,  ist  Sess.,  Reports  IV.,  No,  460,  p.  438. 

S.In  1816,  as  Senator  from  New  Hampshire,  Mason  opposed  the  charter  of  the  national  bank. 


194 


A  HISTORY  OF  BANKING. 


the  purpose  in  view,  he  certainly  entrapped  Biddie  as  if  he  had  known  the 
deepest  weaknesses  of  the  latter's  character.  After  Biddle's  troubles  came, 
somebody  said  that  he  should  never  have  been  anything  but  a  professor  of 
belles  lettres.  He  wrote  with  great  facility  and  good  literary  skill,  but  his 
great  weakness  was  to  write  too  much.  In  his  first  reply  to  Ingham  he 
wrote  a  long  letter,  without  apparently  imagining  that  he  had  to  deal  with 
any  active  hostility,  opening  points  at  which  his  enemies  could  attack  him. 
He  said  that  Mason  had  been  appointed  to  a  vacancy  caused  by  the  resig- 
nation, not  by  the  removal,  of  his  predecessor;  that  the  salary  of  the  position 
had  not  been  increased  for  Mason ;  that  after  Mason's  appointment  Webster 
had  been  asked  to  persuade  him  to  accept.  He  quoted  a  letter  from  Wood- 
bury to  himself  In  July  in  which  Woodbury  said  that  Mason  was  as  unpopular 
with  one  party  as  the  other,  from  which  Biddie  inferred,  no  doubt  correctly, 
that  Mason,  as  banker,  had  done  his  duty  by  the  Bank  without  regard  to 
politics.  Biddie  further  explained  that  the  branch  had  previously  not  been 
well  managed  and  that  Mason  had  been  appointed  as  a  competent  banker 
and  lawyer  to  bring  about  necessary  reforms.  It  is  easy  to  see  that  Mason, 
in  this  attempt  to  reform  the  bank,  had  to  act  in  a  manner  which,  in  those 
days,  was  considered  severe,  and  that  he  disappointed  those  who,  on  account 
of  pohtical  sympathy,  expected  favors  but  did  not  get  them. 

Biddie  had  thus  played  directly  into  the  hands  of  his  enemies  in  his  first 
letter.  ' '  I  chose, "  says  Ingham,  ' '  rather  than  leave  suspicion  to  interpret  my 
silence,  to  make  a  frank  avowal  of  the  principles  which,  it  appeared  to  me, 
ought  to  regulate  the  actions  of  the  Bank."  Every  one  of  the  suggestions 
which  he  put  in  stung  Biddie  to  controversy.  The  latter  even  was 
compelled  to  write  a  second  letter,  in  which  he  recurred  more  fully  to  the 
point  about  politics,  declaring  that  the  bank  had  nothing  to  do  with  politics; 
that  people  were  all  the  time  trying  to  draw  it  into  politics;  but  that  it  always 
resisted. 

To  this  Ingham  replied,  July  23,  insisting  that  there  must  be  grounds  of 
complaint  and  that  exemption  from  party  preference  was  impossible.  He 
added  that  he  represented  the  views  of  the  administration.  Ingham  says 
that  this  letter  unfortunately  fell  into  the  hands  of  General  Cadwallader,  the 
acting  president,  who,  instead  of  strengthening  the  case  of  the  Bank  by  fur- 
nishing Ingham  with  some  reply  by  which  he  could  silence  its  enemies, 
made  it  weaker  by  still  more  positive  asseverations  that  the  Bank  had  never 
meddled  with  politics,  which,  says  Ingham,  was  far  beyond  what  he  could 
know,  in  view  of  the  number  of  branches  and  officers  scattered  all  over 
the  country,  while  Ingham  supposed  that  he  had  positive  knowledge  that 
at  least  one  such  case  had  occurred. 

In  the  midst  of  this  correspondence,  in  August,  the  Secretary  of  War 
ordered  the  pension  agency  transferred  from  the  Portsmouth  branch  to  the 
bank  at  Concord,  of  which  Isaac  Hill  had  been  president.  The  parent  Bank 
forbade  the  branch  to  comply  with  this  order  on  the  ground  that  it  was 
illegal.     The  order  was  revoked. 


THE  BANK  WAR. 


195 


Biddle  had  visited  the  BufTalo  and  Portsmouth  branches  during  the 
summer.  September  is.  he  wrote  again  to  Ingham.  He  says  that  two 
memorials  have  been  sent  to  him  by  Isaac  Hill,  Second  Comptroller  of  the 
Treasury,  one  from  the  business  men  of  Portsmouth,  and  the  other  from 
sixty  members  of  the  Legislature  of  New  Hampshire,  requesting  Mason's 
removal,  and  nominating  a  new  board  of  directors,  "friends  of  General 
Jackson  in  New  Hampshire."  There  is  a  co-ordination  about  these 
numerous  petty  attacks  which  makes  them  look  as  if  they  had  been  planned 
by  the  clique  at  Washington  which  was  hostile  to  the  Bank.  If  the  purpose 
was  to  sting  Biddle  into  imprudence,  they  met  with  complete  success. 
The  tone  of  his  letter  is  sharp  and  independent.  Ingham  had  not  formulated 
any  definite  statements  of  fact  or  opinion.  He  had  dealt  in  inuendo. 
Biddle  formulated  the  issues  which,  as  he  perceived,  lurked  in  the  inuendo. 
He  denies  that  public  opinion  in  the  community  around  a  bank  is  any  test 
of  bank  management,  and  declares  that  the  reported  opinion  at  Portsmouth 
upon  examination  "degenerated  into  the  personal  hostility  of  a  very  limited 
and  for  the  most  part  very  prejudiced  circle.'"  He  then  takes  up  three  points 
which  he  finds  suggested  in  Ingham's  letters:  first,  that  the  Secretary,  by 
virtue  of  the  relations  of  the  government  to  the  Bank,  has  some  supervision 
over  the  choice  of  officers  of  the  Bank;  second,  that  there  is  some  action  of 
the  government  on  the  Bank,  which  is  not  precisely  defined,  but  of  which  tiie 
Secretary  is  the  proper  ngent;  third,  that  it  is  the  right  and  duty  of  the 
Secretary  to  make  known  to  the  president  of  the  Bank  the  views  of  the 
administration  on  the  political  opinions  of  the  officers  of  the  Bank.  To  these 
points  he  rejoined  that  the  board  of  directors  of  the  Bank  acknowledge  no 
responsibility  whatever  to  the  Secretary,  in  regard  to  the  political  opinions 
of  the  officers  of  the  Bank;  that  the  Bank  is  responsible  to  Congress  only,  and 
is  carefully  shielded  by  its  charter  from  executive  control.  He  indig.nantly 
denies  that  freedom  from  political  bias  is  impossible;  shows  the  folly  of  the 
notion  of  political  "checks  and  counter-balances"  between  the  officers  of  the 
Bank,  and  declares  that  the  Bank  ought  to  disregard  all  parties.  He  would 
have  won  a  complete  victory  on  the  argument  of  his  points,  if  he  had  been 
before  an  impartial  tribunal,  but  he  stung  Ingham's  vanity,  and  on  the  main 
issue  he  delivered  himself  into  the  hands  of  his  enemies. 

"It  never  occurred  to  me,"  says  Ingham,  in  his  apology  of  1832,  "that 
these  [my]  friendly  intentions  could  be  so  misunderstood,  or  my  expressions 
so  perverted  and  misrepresented,  as  they  were  found  to  be  in  Mr.  Biddle's 
letter  of  the  15  September."  He  calls  Biddle's  denial  that  the  Bank  ever 
made  or  withheld  a  loan  for  political  reasons  "too  confident  if  not  presump- 
tuous;" and  laments  that  his  own  "motives  were  misunderstood  and  his 
friendly  purposes  wholly  disappointed.  "  Instead  of  being  furnished  with  a 
triumphant  answer  with  which  to  defeat  the  enemies  of  the  Bank,  he  found 
himself  forced  to  defend  himself  from  the  charge  of  trying  to  "seduce"  the 
Bank  into  political  relations  with  the  administration;  hence  his  letter  of 
October  5th. 


I|i 


M 


M 


4\\ 


i 
§ 


if 


196 


A  HISTORY  OF  BANKING. 


%■ 


i'l!  i 


That  letter  is  smooth,  courteous,  and  plausible;  but  with  a  knowledge  of 
the  ideas  and  sentiments  which  were  behind  it  in  the  administration  circle,  it 
is  full  of  menace  and  deep  hostility.  Ingham  discusses  the  points  implied 
by  him,  but  in  form  raised  by  Biddle,  as  if  they  had  been  brought  forward  by 
the  latter.  He  says  that  if  the  Bank  should  abuse  its  powers,  the  Secretary 
is  authorized  to  remove  the  deposits.  Hence  the  three  points  which  Biddle 
fr  id  in  his  former  letter  are  good.  It  does  not  appear  that  Biddle,  up  to 
t.  at  time,  had  ever  thought  of  this  power  as  within  the  range  of  the  dis- 
cussion, or  of  the  exercise  of  it  as  amongst  the  possibilities.  Ingham  says 
that  there  are  two  theories  of  the  Bank:  first,  that  it  is  exclusively  for  national 
purposes  and  for  the  common  benefit  of  all,  and  that  the  "employment  of 
private  interest  is  only  an  incident — perhaps  an  evil, — founded  in  mere  con- 
venience for  care  and  management."  Second,  that  it  is  intended  "to 
strengthen  the  arm  of  wealth,  and  counterpoise  the  influence  of  extended 
suffrage  in  the  disposition  of  public  affairs, "  and  that  the  public  deposits  are 
one  of  its  means  for  performing  this  function.  He  says  that  there  are  two 
means  of  resisting  the  latter  theory :  the  power  to  remove  the  deposits,  and 
the  power  to  appoint  five  of  the  directors.  He  adds  that  if  the  Bank  should 
exercise  political  influence,  that  would  afford  him  the  strongest  motive  for 
removing  the  deposits. 

Biddies  reply  of  October  9th  is  still  gay  and  good-natured.  He  recedes 
from  the  controversy,  only  maintaining  that  it  is  the  policy  of  the  Bank  to 
keep  out  of  politics.*  Ingham  in  his  reminiscences  of  1832  says  that  this 
letter  showed  a  disposition  to  do  him  justice. 

In  Ingham's  letters  of  July  2}  and  October  5  is  to  be  found  the  key  to  the 
Bank  war.  In  the  first  place  the  Bank  is  viewed  as  a  political  engine.  The 
Secretary  argues  that  the  Bank  cannot  keep  out  of  politics:  that  its  officers 
ought  to  be  taken  from  both  parties;  and  that  if  it  meddles  with  politics,  he 
will  punish  it  by  removing  the  deposits.  The  only  escape  from  the 
situation  thus  created  is  to  go  into  politics  on  his  side.  If  the  Bank  does  not 
do  so,  It  is  an  enemy  and  must  be  treated  as  such.  In  the  second  place,  the 
most  important  point  in  the  whole  correspondence  is  Ingham's  attempt  to 
define  the  issue  between  two  different  theories  of  the  political  philosophy  of 
a  national  bank.  The  second  proposition  which  he  formulated  expounds 
the  notion  which  the  Kentucky  relief  men  had  developed  about  the  Bank, 
and  which  they  attributed  to  it  as  the  theory  and  purpose  of  its  existence. 
It  was  indeed  ridiculous  to  allege  that  the  stockholders  of  the  Bank  had 
subscribed  $28,000,000  in  order  to  go  crusading  against  democracy  and 
universal  suffrage ;  but  we  must  bear  in  mind  also  that  there  was,  as  there 
always  had  been,  a  very  large  party  all  over  the  Union,  who  believed  that,  as 

*  The  State  Rights  Party  In  South  Carolina  having  declared  that  the  local  branch  of  the  Bank  had  actively  interfered 
against  them  In  the  State  election  of  i8)o.  Biddle  wrote  to  the  president  of  the  branch  that  it  was  one  of  the  principles  of  the 
Bajil<  not  to  Interfere  in  politics  at  all,  and  that,  white  leaving  to  all  their  rights  and  liberties  as  citizens,  it  expected  its 
employees  to  act  in  conformity  with  the  policy  of  the  Banli  in  this  ref  pect.  He  called  for  Information  which  he  could  lay 
before  the  directors  to  reassure  them  that  the  rules  of  the  B  jnk  were  not  being  brolien.  This  letter  was  not  published  until 
1831.    (41  Niles,  478.) 


THE  BANK  U^/IR. 


1 97 


a  matter  of  fact,  the  Bank  in  its  practical  operation  was  inimical  to  democ- 
racy. After  all,  this  was  only  a  hostile,  invidious,  and  exaggerated  con- 
struction of  the  purpose  which  Hamilton  hud  put  forward  as  the  political 
philosophy  of  the  first  Bank.* 

The  public  deposits,  including  the  amount  to  the  credit  of  disbursing 
officers,  increased  suddenly  in  1824,  being  $7.7  millions.  They  lluctu..tcd 
between  $6  millions  and  $10  millions  from  that  time  until  the  time  of  this 
correspondence.  They  were  sure  to  increase.  They  were  $10  millions  or 
$12  millions  during  the  following  years. 

The  ultimate  agents  in  bringing  on  the  Bank  war  were  Amos  Kendall 
and  Isaac  Hill.  The  origin  of  Kendall's  eager  hostility  to  the  Bank  can  only 
be  inferred,  t  Jackson  is  not  known  to  have  had  any  opinion  about  the 
Bank  when  he  came  to  Washington ;  nor  is  it  known  that  he  had  had  any 
collision  with  the  Bank,  except  that,  when  he  was  on  his  way  to  Florida  ;:s 
Governor,  the  branch  at  New  Orleans  refused  his  request  that  it  would 
advance  money  to  him  on  his  draft  on  the  Secretary  of  State  at  its  face 
value. t  His  only  public  act,  in  connection  with  matters  at  all  related  to 
banking  and  finance,  had  been  in  opposition  to  paper  issues  and  relief.^ 
Isaac  Hill  contributed  the  element  of  local  bank  jealousy  and  party  rancor. 
These  two  men,  either  by  telling  Jackson  that  the  Bank  had  worked  against 
him  in  the  election,  or  by  other  means,  infused  into  his  mind  the  hostility 
to  it  which  had  long  rankled  in  theirs.     They  were  soon  reinforced  by  Blair. 

In  November,  just  before  Congress  met,  an  editorial  appeared  in  the 
New  York  "Courier  and  Inquirer,"  containing  a  series  of  questions,  among 
which  were  the  following:  "Will  sundry  banks  throughout  the  Union  take 
measures  to  satisfy  the  general  government  of  their  safety  in  receiving 
deposits  of  the  revenue,  and  transacting  the  banking  concerns  of  the  United 
States  ?  Will  the  Legislatures  of  the  several  States  adopt  resolutions  on  the 
subject,  and  instruct  their  Senators  how  to  vote  ?  Will  a  proposition  be 
made  to  authorize  the  government  to  issue  exchequer  bills  to  the  amount  of 
the  annual  revenue,  redeemable  at  pleasure,  to  constitute  a  circulating 
medium  equivalent  to  the  notes  issued  by  the  United  States  Bank  ?  "  This 
editorial  was  based  upon  a  letter  from  Amos  Kendall.  ||  It  contains  a  premo- 
nition of  the  "pet  bank"  system  and  also  of  the  scheme  of  a  Treasury  note 
issue, — two  alternative  projects  which  recur  often  in  the  following  years. 
The  article  caused  some  vague  wonder,  but  attracted  no  serious  attention. 
After  the  message  of  the  year  was  published,  the  retrospect  gave  it  greater 
importance.    Niles  republished  it,  Jan.  30,  1830. 

Jackson's  first  annual  message  contained  a  paragraph  on  the  Bank,  which 
struck  the  whole  country  with  astonishment.  "We  had  seen,"  says  Niles, 
"one  or  two  dark  paragraphs  in  certain  of  the  newspapers  which  led  to  a 
belief  that  the  administration  was  not  friendly  to  this  great  moneyed  institu- 
tion, but  few  had  any  suspicion  that  it  would  form  one  of  the  topics  of  the 


•  Set  |»gc  25 


t  Sm  page  1 3 J. 


i  Sm  page  148. 


t  2  Panon's  Jackson,  596. 
I  Memoln  of  Bennett,  111. 


m 


I  1  n 


198 


A  HISTORY  OF  BANKING. 


first  message."*  After  mentioning  tiie  fact  that  tiie  cliarter  would  expire  in 
1836,  and  that  a  renewal  would  no  doubt  be  asked  for,  the  message  said 
that  such  an  important  question  could  not  too  soon  be  brought  before  Con- 
gress and  the  people.  "Both  the  constitutionality  and  the  expediency  of 
the  law  creating  this  Bank  are  well  questioned  by  a  large  portion  of  our 
fellow  citizens,  and  it  must  be  admitted  by  all  that  it  has  failed  in  the  great 
end  of  establishing  a  uniform  and  sound  currency.  Under  these  circum- 
stances, if  such  an  institution  is  deemed  essential  to  the  fiscal  operations  of 
the  government,  I  submit  to  the  wisdom  of  the  Legislature  whether  a 
national  one,  founded  upon  the  credit  of  the  government  and  its  revenues 
might  not  be  devised,  which  would  avoid  all  constitutional  difficulties,  and 
at  the  same  time  secure  all  the  advantages  to  the  government  and  country 
that  were  expected  to  result  from  the  present  Bank." 

Statistics  exist  which  show  the  value  of  the  currency  in  different  parts  of 
the  country  for  every  year  from  18 14.  These  show  that  the  currency  had 
steadily  grown  toward  uniformity  at  par  of  specie  from  18 19  to  1829.  No 
person  living  could  remember  when  the  currency  had  been  as  good  as  it 
then  was,  including  that  of  the  new  States.  So  much  as  to  the  matter  of 
fact;  as  to  the  matter  of  opinion,  the  correctness  of  which  is  open  to  doubt, 
there  was  scarcely  anybody  amongst  the  classes  conversant  with  affairs  who 
did  not  believe  that  the  Bank  of  the  United  States  was  to  be  credited  with 
having  brought  about  this  state  of  things.  The  vague  and  confused  propo- 
sition of  the  President  about  a  bank  "founded  upon  the  credit  of  the  gov- 
ernment and  its  revenues  "  caused  alarm.  What  did  he  mean  by  it  ?  It 
sounded  like,  what  it  undoubtedly  was,  a  bank  on  the  southwestern  Bank 
of  the  State  plan,  or  a  Bank  of  the  Commonwealth  of  Kentucky.  The  stock 
of  the  United  States  Bank  declined  from  12=,  to  1 16,  on  account  of  the  mes- 
sage, it  was  supposed  that  the  President  of  the  United  States  must  have 
knowledge  of  some  facts  injurious  to  the  credit  of  the  Bank. 

In  the  House  this  part  of  the  message  was  referred  to  the  Committee  on 
Ways  and  Means,  from  which  a  report  was  made  by  McDuffie,  April  i}, 
1S30.  He  defended  the  constitutionality  of  the  Bank  and  its  expediency  at 
every  point,  and  declared  the  Bank  proposed  by  the  President  to  be  very 
dangerous  and  inexpedient,  both  financially  and  politically — the  latter 
because  it  would  increase  the  power  of  the  Executive.  In  the  Senate, 
Smith,  of  Maryland,  reported  from  the  Committee  on  Finance  in  favor  of 
the  Bank  at  every  point.  His  topic  was  the  expediency  of  establishing  a 
uniform  national  currency.  He  declared  that  the  notes  of  the  United  States 
Bank  were  such  a  currency,  and  that  funds  were  transferred  from  Philadel- 
phia to  St.  Louis,  New  Orleans,  and  other  extreme  points  for  one-half  of 
one  per  cent. 

When  a  word  of  order  is  given  out  to  a  party,  the  partisans,  eager  to 
distinguish  themselves  by  their  zeal,  hasten  to  push  it  to  extravagance.     It 

*  37  Niles,  J57. 


THE  BANK  IVAR. 


IQ9 


late, 
of 
nga 
lates 
idel- 
If  of 


must  therefore  be  regarded  as  one  of  the  strongest  proofs  that  the  attack  on 
the  Bank  responded  to  no  strong  feeling  in  the  popular  mind,  that  it  hung 
fire  for  ,two  or  three  years.  The  leading  politicians  in  the  Jackson  party 
were  so  committed  to  the  Bank  that  it  was  awkward  for  them  to  turn 
against  it,  and  it  was  at  least  three  years  before  th^  local  banks,  seeing  the 
opportunity  which  was  offered  to  them,  began  to  join  in  the  war  on  the 
Bank.  Politically  this  last  effect  was  the  most  important  of  all.  It  was  the 
formation  of  the  bank  democrats,  as  a  wing  of  the  Jackson  party,  which 
gave  that  party  its  strength  and  accounted  for  its  great  victories.*  The 
bank  democrats  were  all  won  from  amongst  those  who  would  otherwise 
have  been  whigs.  The  distribution  of  the  deposits  in  1836  weakened  them, 
and  the  independent  treasury  alienated  them  from  the  democratic  party,  and 
brought  about  the  great  defeat  of  the  latter  in  1840. 

The  House,  May  10,  1830,  tabled  by  89  to  66,  resolutions  that  the  House 
would  not  consent  to  renew  the  charter,  and  on  May  29th  it  tabled,  95  to 
67,  a  series  of  resolutions  calling  for  a  comprehensive  report  of  the  proceed- 
ings of  the  Bank.  As  yet  there  were  no  allegations  against  the  manage- 
ment of  the  Bank.     The  stock  rose  to  130. 

In  the  message  for  1830  Jackson  again  inserted  a  paragraph  about  the 
Bank,  and  proposed  a  new  Bank,  as  a  "branch  of  the  Treasury  Department." 
The  outline  was  very  vague,  it  has  been  interpreted  by  different  writers 
as  approximating  to  the  sub-treasury  idea  or  to  the  exchequers  and  fiscal 
agencies  of  184 1. 

Wayne  of  Georgia  distinguished  himself  in  the  effort  to  sustain  the 
message,  which  is  an  interesting  fact  in  view  of  his  subsequent  appointment 
to  the  bench  of  the  Supreme  Court,  and  his  share  in  the  decision  of  Briscoe's 
case.  He  only  asked  that  the  message  might  be  referred  to  a  special 
committee,  instead  of  to  the  already  hostile  Committee  on  Ways  and  Means. 
He  thought  that  such  a  bank  as  was  suggested  could  be  devised,  and  he 
wanted  it  considered  by  an  unprejudiced  committee.  The  House  refused, 
108  to  76,  to  grant  even  this  much.  Benton  offered  a  resolution  in  the  Senate, 
February  2,  1831,  "that  the  charter  of  the  Bank  of  the  United  States  ought 
not  to  be  renewed."  The  Senate  refused  leave,  23  to  20,  to  introduce  it. 
In  July,  the  Secretary  of  War  ordered  the  pension  funds  for  the  State  of 
New  York  to  be  removed  from  the  New  York  branch.  Biddle  remonstrated, 
because  there  was  no  authority  of  law  for  the  order  and  the  Auditor  had 
refused  to  accept  such  an  order  as  a  voucher  in  a  previous  case.  Secretary 
Cass  revoked  the  order  March  i,  1832. 

The  message  of  the  next  year  was  much  more  tame  in  regard  to  the 
Bank.  The  President  referred  to  it  as  a  subject  on  which  he  had  discharged 
his  responsibility.  The  Secretary  of  the  Treasury,  McLane,  in  his  annual 
report,  made  a  long  and  strong  argument  in  favor  of  the  Bank.     From  this  it 


m 


% 


*  The  term  "  bank  democrat "  at  this  time  is  ambiKUOus.  It  is  often  used  for  those  Jacltson  men  who  were  friendly  to 
the  Banlt  of  the  United  States,  hut  also  for  those  recruits  of  thejaclcson  party  who  were  brought  in  by  the  local  bank 
interest. 


m 


s  • 


11 


200 


A  HISTORY  OF  BANKING. 


appears  that  the  response  to  the  suspicions  aimed  at  the  Bank  by  the 
President  had  been  so  faint  that  the  administration  was  ready  to  give  up  the 
Bank  war.  Perhaps  this  encouraged  the  opposition  to  think  that  it  would 
be  good  policy  for  them  to  take  up  the  Bank  issue.  It  was  in  this  same 
month  of  December,  1831,  that  Clay  was  nominated  candidate  for  the 
presidency  in  the  campaign  of  the  following  year.  At  a  conference  of  his 
supporters  at  Washington,  he  assumed  control  of  the  campaign,  and  claimed 
a  right  to  make  the  platform,  in  a  very  dictatorial  manner.*  The  chief  point 
of  interest  then  was  the  tariff,  but,  for  the  fight  out  of  doors,  he  thought  that 
the  recharter  of  the  Bank  was  the  strongest  issue  that  could  be  made.  The 
Clay  convention,  in  its  address  to  the  public,  said:  the  President  "is  fully 
and  three  times  over  pledged  to  the  people  to  negative  any  bill  that  may  be 
passed  for  rechartering  the  Bank,  and  there  is  little  doubt  that  the  additional 
influence  which  he  would  gain  by  a  re-election  would  be  employed  to  carry 
through  Congress  the  extraordinary  substitute  which  he  has  repeatedly 
proposed." 

if  we  believe  that  the  administration  had  receded  from  its  attack  on  the 
Bank,  then  there  would  be  a  color  of  truth  in  Benton's  assertion  that  the  Bank 
attacked  Jackson.  The  friends  of  the  Bank  were  later  accustomed  to  say 
that  its  disinterested  friends  in  both  parties  had  strongly  dissuaded  Biddle 
from  allowing  the  question  of  recharter  to  be  brought  into  the  campaign. f 
Clay's  advisers  tried  in  vain  to  dissuade  him.  The  Bank  could  not  oppose 
the  public  man  on  whom  it  depended  most,  and  the  party  leaders  deferred  at 
last  to  their  chief.  Adams,  however,  who  had  as  little  passion  as  any 
politician  of  the  time,  told  the  Secretary  of  the  Treasury,  early  in  January, 
that  he  had  "prepared  a  resolution  for  bringing  to  issue,  in  the  House  of 
Representatives,  the  question  of  rechartering  the  Bank." 

The  position  then  was  that  Jackson  had  made  a  challenge,  had  receded 
from  it,  and  his  opponents  had  taken  it  up  and  turned  it  as  a  challenge 
against  him.  What  would  he  do?  It  seems  that  no  one  who  knew  the 
facts  of  his  career  could  doubt  what  he  would  do.  He  would  return  to 
the  issue  and  would  fight  it  out,  regardless  of  all  considerations  whatsoever, 
to  a  definite  and  conclusive  victory  or  defeat.     That  is  what  he  did  do. 

On  the  9th  of  January,  1832,  in  prosecution  of  the  Clay  program,  the 
memorial  of  the  Bank  for  a  renewal  of  its  charter  was  presented  in  the  Senate 
by  Dallas  and  in  the  House  by  McDuffie,  both  of  whom  were  democrats  but 
in  favor  of  the  Bank.  The  Bank  wanted  Webster  or  some  such  unequivocal 
friend  to  present  the  memorial,  but  Dallas  claimed  the  duty  as  belonging  to 
a  Senator  from  Pennsylvania.  J  There  was  great  dissatisfaction  with  him  for 
the  way  in  which  he  managed  the  business.  He  intimated  a  doubt  whether 
the  application  was  not  premature,  and  a  doubt  about  the  policy  of  the 
memorial,  lest  "it  might  be  drawn  into  a  real  or  imaginary  conflict  with 
some  higher,  some  more  favorite,  some  more  immediate  wish  or  purpose  of 


*  8  Adims's  Diary,  445. 


t  IngersoU,  Second  War,  a68. 


X  I  Sargent,  ais. 


THE  B/INK  WAR. 


201 


the  American  people."  In  both  Houses  the  reports  were  favorable.  The 
proposition  to  recharter  had  called  out  a  number  of  wild  and  extragavant 
propositions,  and  it  was  thought  expedient  to  close  the  matter  up  as  soon  as 
possible,  in  order  to  put  a  stop  to  such  schemes. 

The  issue  having  thus  been  made  up,  Jackson's  supporters  in  Congress 
determined  to  fight  the  charter  at  every  point  and  to  bring  the  Bank  into 
odium  as  much  as  possible.*  Benton  organized  the  movement  in  the 
House.  He  incited  Clayton  of  Georgia  to  demand  an  investigation  of  the 
Bank,  and  furnished  him  with  seven  important  and  fifteen  minor  charges 
and  specifications  on  which  to  base  that  demand.  Clayton  presented  them 
and  moved  for  the  investigation  February  23d.  The  Committee  reported 
April  30th.  This  is  the  great  investigation  of  the  Bank  in  1832.  There 
were  three  reports.  The  one  which  was  called  the  majority  report  was 
signed  by  R.  M.  Johnson,  out  of  good  nature.  He  rose  in  his  place  in  Con- 
gress and  said  that  he  had  not  looked  at  a  document  at  Philadelphia.  This 
report  recommended  that  the  Bank  should  not  be  rechartered  until  the  debt 
was  all  paid  and  the  revenue  adjusted.  The  minority  reported  that  the 
Bank  ought  to  be  rechartered ;  that  it  was  sound  and  useful.  John  Quincy 
Adams  made  a  third  report,  in  which  he  discussed  with  great  discrimina- 
tion all  the  points  raised  in  the  attack  on  the  Bank.  It  is  to  his  report  that 
we  are  indebted  for  a  knowledge  of  the  correspondence  of  1829  between 
Biddle  and  Ingham,  and  of  the  controversy  over  the  Portsmouth  branch. 

The  charges  against  the  Bank  and  the  truth  about  them,  so  far  as  we 
can  discover  it,  were  as  follows : 

I. — Usury.  The  bank  sold  Bank  of  Kentucky  notes  to  certain  persons 
on  long  credit,  and  afterwards  granted  an  allowance  for  depreciation.  In 
one  case  these  contracts  got  into  court,  but  the  decision  went  off  on  tech- 
nicalities which  were  claimed  to  amount  to  a  confession  by  the  Bank  that  it 
had  made  an  unlawful  contract,  f  The  Bank  had  also  charged  discount  and 
exchange  for  domestic  bills  wiien  these  two  together  amounted  to  more 
than  six  per  cent.,  the  rate  to  which  it  was  restrained  by  its  charter.  This 
charge  was  no  doubt  true.  All  banks  employed  these  means  more  or  less 
to  evade  the  usury  law. 

2. — Branch  drafts  issued  as  currency.  The  amount  of  these  outstanding 
was  $7.4  millions.  The  majority  of  the  Committee  doubted  the  lawfulness 
of  the  branch  drafts,  but  said  nothing  about  the  danger  from  them  as  instru- 
ments of  credit.  Adams  said  that  they  were  useful  but  likely  to  do  mis- 
chief. Their  operation  will  appear  sufficiently  in  the  course  of  this  history. 
When  Biddle  was  asked  how  the  branch  draft  arrangement  differed  from  an 
obligation  of  a  Philadelphia  bank  to  redeem  all  the  notes  of  all  the  banks  of 
Pennsylvania,  he  answered  that  the  Bank  of  the  United  States  controlled  all 
the  branches  which  issued  drafts  on  it.  That  was  indeed  the  assumption, 
but  it  was  by  no  means  true  in  fact,  as  the  experience  of  the  previous  win- 
ter had  taught  him. 


t , 


*  I  Benton,  2)6. 


t  Bank  of  the  United  States  vs.  Owena ;  3  Peters,  517, 


li  m 


202 


A  HISTORY  OF  BANKING. 


}. — Sales  of  coin,  especially  American  coin.  The  Bank  had  bought  and 
sold  foreign  coin  by  weight,  and  had  sold  $84,734.44  of  American  gold  coin. 
The  majority  held  that  the  foreign  coins  were  not  bullion  because  Congress 
had  fixed  their  value  by  law.  Adams  easily  controverted  this.  All  gold 
coins  at  that  time,  American  included,  were  a  commodity,  not  money. 

4. — Sales  of  public  stocks.  The  Bank  was  forbidden  by  its  charter  to  sell 
public  stocks.  In  1824,  upon  a  refunding  of  the  public  debt,  the  Bank  sub- 
scribed for  a  new  issue.  It  had  special  permission  by  act  of  Congress  to 
sell  them.     Nevertheless  the  majority  disapproved  of  the  sale. 

5. — Gifts  to  roads,  canals,  etc.  The  Bank  had  made  two  subscriptions 
of  $1,500  each  to  the  stock  of  turnpike  companies.  The  other  cases  were 
all  petty  gifts  to  fire  companies,  etc.  The  majority  argued  that  since  the 
administration  had  pronounced  against  internal  improvements,  the  Bank 
ought  not  to  have  assisted  any  such  works.  Adams  said  that  the  adminis- 
tration had  opposed  internal  improvements  on  the  ground  that  they  were 
unconstitutional  when  undertaken  by  the  federal  government;  but  he  asked 
what  argument  that  furnished  against  such  works  when  undertaken  by 
anybody  else.  The  petty  gifts  were  such  as  it  was  thought  for  the  interest 
of  the  Bank  to  make,  as  douceurs,  etc.  As  it  was  an  expenditure  of  the 
stockholders'  money,  it  seemed  to  belong  to  them  alone  to  complain  of  it. 

6. — Building  houses  to  rent  or  sell.  The  Bank  had  been  obliged  in  some 
cases  to  take  real  estate  for  debts.  When  it  could  not  sell,  it  had  in  a  few 
cases  improved.  The  amount  was  trivial  and  the  cases  such  as  involved  no 
intentional  violation  of  the  charter. 

These  points  were  the  alleged  violations  of  the  charter.  The  charge  of 
non-user  in  failing  to  issue  notes  in  the  South  and  West  for  seven 
years  Biddle  met  with  a  point  blank  denial.  Adams  pointed  out  that  these 
charges  would  only  afford  ground  for  a  scire  facias  to  go  before  the  jury  on 
the  facts. 

The  charges  of  mismanagement  and  the  truth  about  them,  so  far  as  we 
can  ascertain,  were  as  follows : 

I. — Subsidizing  the  press.  Webb  and  Noah  of  the  "Courier  and 
Inquirer"  (administration  organ  until  April,  1831,  when  it  went  into  oppo- 
sition on  the  Bank  question)  were  borrowers  from  the  Bank.  Noah  got  a 
loan  from  it  through  Silas  Burrows,  with  which  to  buy  half  the  paper. 
When  two  New  York  banks  refused  discounts  to  Webb  and  Noah,  they  got 
long  and  large  loans  from  the  United  States  Bank.  If  these  transactions  had 
been  openly  avowed,  they  would  have  had  no  importance,  but  the  attempt 
was  made  to  cover  them  over  by  excuses  and  explanations  which  produced 
a  bad  effect.  Gales  and  Seaton  of  the  "National  Intelligencer"  (independent 
opposition).  Duff  Green  of  the  "Telegraph"  (Calhoun's  organ  and  therefore 
administration,  until  the  spring  of  1851)  and  Thomas  Ritchie  of  the  "Rich- 
mond Inquirer"  (administration)  were  on  the  books  of  the  Bank  as  bor- 
rowers. The  change  of  party  by  the  "Courier  and  Inquirer"  was  regarded 
as  very  significant.     Adams  said  that  there  was  no  law  against  subsidizing 


THE  BANK  IVAR. 


20} 


the  press,  and  that  the  phrase  meant  nothing.  If  State  banks  could  punish 
those  who  favored  the  United  States  Bank,  why  should  not  the  United 
States  Bank  help  them  ?  Should  editors  be  allowed  no  bank  accommoda- 
tion ?  If  the  Bank  discounted  a  note  for  an  administration  editor,  it  was 
said  to  subsidize  him.     If  for  an  opposition  editor,  it  was  said  to  bribe  him. 

2. — Favoritism  to  Thomas  Biddle,  second  cousin  of  the  president  of  the 
Bank,  and  its  broker.  N.  Biddle  admitted  that  the  Bank  had  allowed  a  usage 
adopted  by  other  banks  of  allowing  cash  in  the  drawer  to  be  loaned  out  to 
particular  persons  and  replaced  by  memorandum  checks  which  were  passed 
as  cash  for  a  few  days.  He  said  that  the  practice  had  been  discontinued. 
Reuben  M.  Whitney  made  a  very  circumstantial  charge  that  T.  Biddle  had 
been  allowed  to  do  this  and  that  he  had  paid  no  interest  for  the  funds  of  the 
Bank  of  which  he  thus  got  the  use.  The  loans  to  him  were  very  large. 
October  15,  1830,  he  had  $1,131,672  aj  five  per  cent.  N,  Biddle  proved  that 
he  was  in  Washington  at  a  time  when  Whitney's  statement  implied  that  he 
was  in  Philadelphia.  Adams  said  that  Whitney  lied.  It  was  certainly  true, 
and  was  admitted,  that  T.  Biddle  had  had  enormous  confidential  transac- 
tions with  the  Bank,  but  Whitney  was  placed  in  respect  to  all  the  important 
part  of  his  evidence  in  the  position  of  a  convicted  calumniator.  We  shall 
hear  of  him  again  below.  In  1837  he  published  an  address  to  the  American 
people,  in  which  he  reiterated  all  his  charges  against  Biddle.* 

3. — Exporting  specie,  and  drawing  specie  from  the  South  and  West. 
From  1820  to  1832,  ^22.'^  millions  were  drawn  from  the  South  and  West  to 
New  York.  This  was  charged  to  the  Bank.  Si'.ver  was,  however,  regu- 
larly imported  from  Mexico  to  New  Orleans,  whence  it  passed  up  the  river 
to  the  North  and  East,  and  was  exported  from  there  to  China.  The  paper 
issues  in  the  Mississippi  Valley  prevented  it  from  staying  there.  So  far  as 
the  branch  drafts  after  1827  helped  to  produce  this  result,  the  Bank  had 
some  share  in  it,  but,  as  there  were  then  very  few  banks  of  issue  in  the 
Valley, t  a  greater  amount  of  specie  was  probably  retained  at  that  time  than 
ever  before.  The  Bank  was  also  charged  with  exporting  specie  as  a  result 
of  its  exchange  operations.  It  sold  drafts  on  London  for  use  in  China,  pay- 
able six  months  after  sight.  They  were  sold  for  the  note  of  the  buyer  at 
one  year,  so  that  the  goods  could  be  imported  and  sold  to  meet  the  draft. 
In  this  way  they  produced  an  inflation  of  credit,  but  the  charge  of  causing 
an  export  of  specie  was  only  an  expression  of  ignorant  popular  prejudice. 

4. — The  improper  increase  of  branches.  No  doubt  there  were  too  many. 
Cheves  in  his  time  thought  some  of  them  disadvantageous  to  the  Bank,  but 
it  had  been  importuned  to  establish  them;  there  was  complaint  if  a  branch 
was  lacking  uhere  the  government  or  influential  individuals  wanted  one, 
and  there  would  have  been  a  great  outcry  if  a  proposition  had  been  made 
to  abolish  one.  How  then  could  their  excessive  number  be  made  a  charge 
against  the  Bank  } 


\  ii 


m 


■  I'ilJ 

.  hi 


n  ;  Si 


*  52  Niks,  106. 


See  page  i66. 


204 


A  HISTORY  OF  BANKING. 


ly  I 


5. — Expansion  of  the  circulation  by  $1.3  millions  between  September  i, 
1831,  and  April  i,  1832,  although  the  discounts  had  been  reduced  during  the 
winter.  The  Bank  was  struggling  already  with  the  branch  drafts,  and  this 
struggle  produced  the  facts  which  were  alleged.  The  majority  found  that 
the  bank  had  only  $9,640,000  in  cash  and  cash  securities  to  meet  $42.6 
millions  in  cash  liabilities.  Very  few  banks  of  the  period  could  have  made 
so  good  a  showing. 

6. — Failure  of  the  Bank  to  serve  the  nation.  The  majority  argued  that  as 
the  duties  were  paid  at  New  York  and  Philadelphia,  and  as  drafts  on  those 
cities  were  always  at  a  premium,  the  Bank  gained  by  transferring  these 
funds  inland  for  the  government.  The  minority  ridiculed  this  as  an  annihi- 
lation of  space,  a  means  of  making  a  thing  worth  more  the  further  it  was 
from  where  it  was  wanted. 

7. — Mismanagement  of  the  public  deposits.  The  majority  declare  that 
the  Bank  ought  to  use  its  capital  as  a  permanent  fund  and  loan  the  public 
deposits  on  time,  so  that  they  would  be  repaid  near  the  time  when  they 
would  be  required  by  government  for  the  debt  payment.  How  to  manage 
the  government  deposits  was  already  becoming  a  question  of  the  first 
importance  to  the  Bank  and  the  public,  but  if  the  Bank  had  done  what 
was  here  proposed,  it  would  have  carried  to  a  maximum  the  disturbances 
in  the  money  market  which  were  actually  produced  by  the  semi-annual 
payments  on  the  debt.  Biddle's  fashion  of  banking,  consisting  in  adroit 
tactics,  adjustments,  and  offsets,  won  its  only  important  triumphs  in 
smoothing  over  the  effects  on  the  money  market  of  the  public  debt 
payments.* 

8. — Postponement  of  the  payment  of  the  three  per  cents.  These  bonds 
were  issued  in  1792  for  the  accrued  interest  on  the  revolutionary  debt,  and 
were  to  be  paid  at  100.  The  Secretary  informed  the  Bank,  March  24th, 
just  before  the  Bank  Committee  was  raised,  that  he  should  pay  half  the 
three  per  cents  in  July.  Biddle  hastened  to  Washington  to  secure  a  post- 
ponement, not,  as  he  affirmed,  for  the  sake  of  the  Bank,  but  for  three  other 
reasons:  first,  nine  million  dollars  duty  bonds  would  be  payable  July  i, 
so  that  the  merchants  would  be  put  to  inconvenience  if  the  debt  payment 
fell  at  that  time;  second,  a  visitation  of  cholera  was  to  be  feared,  which 
would  derange  industry,  and  the  payment  of  the  debt,  with  the  recall  of 
so  much  capital  loaned  to  merchants,  would  add  to  the  distress;  third, 
a  large  amount  of  specie  would  go  out  of  the  country  if  these  bonds 
were  paid.  This  last  argument  the  Committee  criticised  correctly,  showing 
that  no  export  of  specie  worth  noticing  would  be  occasioned.  The  most 
probable  result  would  be  that  the  capital  would  be  re-invested  in  American 
securities,  T  -jisiana  was  then  contracting  with  the  Barings  a  loan  of  seven 
nrJiI'-n'  h.:  Nobody  understood  this  better  than  Biddle.  The  reader  is 
oi"vei;  f?n  \z:d  ''*      "Middle  should  have  dared  to  put  out  his  plausible  "explan- 


•  S«  page  190. 


THE  BANK  IVAR. 


20  s 


ations."  They  were  always  apparently  reckoned  for  the  uninitiated  public 
alone.  It  seems  that  his  pen  ought  to  have  been  arrested  by  the  thought  of 
this  and  that  competent  banker  and  financier  who  might  also  read  the  publi- 
cation, see  through  it,  and  lower  Biddle's  credit  on  account  of  it.  We  have 
found  no  cases  in  which  such  effects  were  produced,  but  on  this  occasion 
the  headstrong  old  man  at  Washington  saw  that  Biddle's  reasons  were 
only  pretexts.  He  made  up  his  mind  that  the  truth  which  they  covered 
was  that  the  Bank  was  in  great  distress.  He  never  altered  that  conviction 
afterwards,  and  his  opinion  was  fateful  for  the  Bank. 

The  friends  of  the  Bank  said  that  the  explanations  given  under  this  head 
were  good  and  sufficient:  its  enemies  said  that  they  were  only  specious  pre- 
texts; that  the  Bank  was  so  weak  as  to  need  government  support,  the 
reason  being  that  its  receipts  were  in  branch  drafts  while  the  payments  on 
the  debt  must  be  made  in  current  money.  The  Secretary  agreed  to  defer 
payment  of  five  million  dollars  of  the  three  per  cents,  until  October  ist,  the 
Bank  agreeing  to  pay  the  interest  during  the  extension. 

9. — Incomplete  number  of  directors.  Biddle  was  both  government 
director  and  elected  director,  so  that  there  were  only  twenty-four  in  all. 
This  was  because  the  appointment  of  government  directors  was  often 
delayed  in  the  Senate,  or  because  the  government  director  might  be 
reappointed  indefinitely  while  the  others  rotated.  The  stockholders  elected 
him  also,  in   order  that  he  might  always  be  eligible  to  the  Presidency.* 

10. — Large  expenditures  for  printing;  $6,700  in  1830,  $9,100  in  1831. 
From  1829,  the  date  of  Jackson's  first  attack,  the  Bank  spent  money  on 
pamphlets  and  newspapers  to  influence  public  opinion  in  its  favor. 

II. — Large  contingent  expenditures.  There  was  a  contingent  fund,  the 
footings  of  which  in  1832  were  six  million  dollars,  to  sink  the  losses  of  the 
first  few  years,  the  bonus,  premiums  on  public  stocks  bought,  banking 
house,  etc.,  etc.  The  suggestion  was  that  this  was  a  convenient  place  in 
which  to  hide  corrupt  expenditures,  and  that  the  fund  was  so  large  as  to 
raise  a  suspicion  that  such  were  included  in  it. 

12. — Loans  to  members  of  Congress  in  advance  of  appropriations. 
Adams  objected  to  this  as  an  evil  practice.  He  said  afterwards  that  the 
investigation  into  this  point  was  dropped  because  it  was  found  that  a  large 
number  of  Congressmen  of  both  parties  had  had  loans. 

13. — Refusal  to  give  a  list  of  stockholders  resident  in  Connecticut  to  the 
authorities  of  that  State,  so  that  it  might  collect  taxes  from  them  on  their 
stock. 

14. — Usurpation  of  the  control  of  the  Bank  by  the  Exchange  Committee 
of  the  Board  of  Directors  to  the  exclusion  of  the  other  directors.  This 
charge  was  denied. 

In  all  this  tedious  catalogue  of  charges  we  find  nothing  but  frivolous 

*  Biddle  was  n  government  director  In  1819,  iSio,  and  1821.  In  i8j2  he  was  not  a  director ;  from  1823  to  1820  he  was 
government  director  and  president ;  in  1829  he  was  also  elected  stockholders' director,  and  held  the  double  qualification  in 
1S30,  1S5 1 ,  and  1832.     After  that  he  was  not  government  director. 


>''   ^ 


,     'IM 


2o6 


A  HISTORY  OF  BANKING. 


■y 


complaint  and  ignorant  criticism  successfully  refuted,  except  when  we  touch 
the  branch  drafts.  If  we  sum  up  all  the  points  made  by  the  majority  of  the 
Committee,  they  appear  to  maintain  that  the  Bank  ought  to  lend  the  public 
deposits  liberally,  and  draw  them  in  promptly,  when  needed,  in  order  to 
pay  the  public  debt,  yet  refuse  no  accommodation  (especially  to  any  one 
who  was  embarrassed),  not  sell  its  public  stocks,  not  increase  its  circulation, 
not  draw  in  its  loans,  not  part  with  its  specie,  not  draw  on  the  debtor 
branches  in  the  West,  not  press  the  debtor  local  banks,  and  not  contract 
any  temporary  loan.  The  student  of  the  evidence  and  reports  of  1832,  if  he 
believes  the  Bank's  statements  in  the  evidence,  will  say  that  it  was  triumph- 
antly vindicated.  Such  was  the  verdict  of  the  reading  and  thinking  public 
of  the  day,  almost  without  exception,  if  persons  with  a  political  bias  are  left 
out  of  account.  The  verdict  of  the  investing  public  was  unanimous  and 
enthusiastic.  If  this  was  all  that  malevolence,  armed  with  the  most  power- 
ful means  of  attack,  could  bring  out  to  the  injury  of  the  Bank,  it  was  exactly 
the  investment  which  they  were  all  seeking.  They  fixed  their  confidence 
on  it  with  a  tenacity  which  in  the  end  became  one  of  the  most  notable  facts 
in  the  history  of  credit;  for  neither  incidental  evidence,  which  should  have 
awakened  their  alarm,  nor  positive  events,  which  should  have  given  them 
warning,  availed  to  do  so. 

We  are  forced  to  distrust  the  apparent  result  of  the  investigation  of  1832, 
because  of  the  light  which  is  thrown  back  upon  it  by  the  history  of  the  last 
years  of  the  Bank.  The  very  things  which  it  was  charged  with  doing  in 
1832,  and  of  which  it  seemed  to  be  acquitted,  were  the  things  which  it  did 
do,  between  1836  and  1840,  and  which  produced  its  ruin.  These  were  the 
things  mentioned  under  the  second  charge,  involving  Whitney's  veracity, 
and  the  fourteenth  charge,  which  the  bank  denied.  Was  it  not  guilty  on 
these  points  in  1832,  and  did  it  not  successfully  conceal  the  facts? 

Furthermore  we  know  that  in  the  matter  of  the  three  per  cents  Biddle 
was  guilty  of  a  plausible  perversion  of  the  truth.  He  wanted  to  defer  the 
payment  for  the  sake  of  the  Bank,  and  for  no  other  reason,  and  he  had 
recourse  to  his  masterly  skill  in  decking  out  plausible  pretexts  in  fine  rhetoric, 
in  order  to  make  it  appear  that  the  Bank  was  acting  only  from  benevolence 
to  th'  merchants  and  loyalty  to  the  government.  The  position  in  which  the 
Bank  found  itself  was  a  result  of  the  working  of  the  branch  drafts.  Their 
effect  was  just  beginning  to  tell  seriously,  and  it  was  cumulative  in  a  high 
ratio. 

We  have  already  seen  that  there  was  a  great  movement  of  free  capital  in 
the  form  of  specie  to  this  country  in  1830,*  and  that  in  that  and  the  following 
year  the  United  States  paid  its  stock  note  in  the  capital  of  the  Bank.  Capital 
was  easy  to  borrow  until  October,  when  a  certain  stringency  set  in.  The 
branch  drafts  were  transferring  the  capital  of  the  Bank  to  the  western 
branches,  and   locking  it  up  there   in   accommodation   paper  indefinitely 


♦Sm 


page  I 


THE  BANK  WAR. 


207 


extended  by  drawing  :ird  re-drawing.  Curtailments  were  ordered  in  tiie 
Mississippi  Valley  October  7,  18  31.  They  were  interpreted  by  Benton  as 
arbitrary  inflictions  for  political  effect.  All  through  the  winter,  Biddle  was 
writing  to  the  southern  and  western  branches  to  contract  their  loans  and 
pay  to  New  York  and  Philadelphia,  so  as  to  strengthen  the  Bank  for  a  pay- 
ment on  the  public  debt  which  was  to  be  made  in  April.  He  could  not 
succeed  in  making  the  western  branches  pay,  and  was  therefore  forced 
to  impose  a  curtailment  on  the  eastern  branches.  The  following  table  shows 
this  relation  of  things: 

Total  due  the  Bank. 

January,  1829 

December  31,  1829  $40.2  millions 

1830  42.4 

1831  63.0 
May,                1832  70.4      " 


Due  the  Bank  in  the  Mlu.  Valley. 

$1 1.0  millions 
13.3      " 

2}.2         " 
31.2         " 

37-5      " 


In  such  a  state  of  things  it  was  impossible  for  Biddle  to  see  with  equan- 
imity a  debt  which  bore  only  three  per  cent,  interest  paid  off  at  one  hundred 
when  the  market  rate  was  seven  or  eight  per  cent.  Even  before  he  received 
notice  that  the  three  per  cents  were  to  be  paid,  he  tried  to  negotiate  with 
Ludlow,  the  representative  of  a  large  number  of  English  holders  of  the  three 
per  cents  for  the  purchase  of  the  same.  Ludlow  had  not  power  to  sell. 
Having  obtained  a  postponement  until  October,  under  the  conditions  above 
mentioned,  the  Bank  sent  Gen.  Cadwallader  to  England  to  negotiate  a  post- 
ponement for  a  year.  The  bondholders  were  to  take  the  Bank  as  their  debtor 
instead  of  the  United  States.  The  Barings  negotiated  this  extension  with 
such  of  the  bondholders  as  were  willing,  but  the  administration  raised  loud 
objection  to  an  arrangement  by  which  the  securities  of  the  United  States 
would  remain  outstanding  after  they  had  been  paid. 

On  the  I  ith  of  October  a  New  York  newspaper  published  an  account  o( 
the  arrangement  which  the  Bank  had  made  with  the  Barings  in  regard  to 
the  three  per  cents,  which  was  to  have  been  kept  secret.  The  Barings  had 
bought  $1,798, '597,  ^nd  had  extended  $2,376,481.  October  15th  Biddle 
repudiated  the  contract,  because  under  it  the  Bank  would  become  a  purchaser 
of  public  stocks.  He  proposed  to  credit  the  extended  stock  to  its  holders  on 
the  books  of  the  Bank,  and  to  pay  for  that  which  the  Barings  had  bought 
when  government  should  redeem  it,  or  to  hold  the  sum  to  the  credit  of  the 
Barings  at  four  per  cent. 

In  fact  the  sinking  fund  was  not  made  as  good  on  the  first  of  October  as 
it  would  have  been  if  the  three  per  cents  had  been  paid  on  July  ist,  although 
the  Bank  had  promised  that  it  should  be  made  so,  as  one  of  the  stipulations 
when  they  were  extended. 

These  matters  and  their  complications  were  what  weakened  the  Bank  in 
its  defense  against  its  enemies,  and  gave  them  the  opening  for  further  attacks 
upon  it.     They  also  entailed  one  difficulty  upon  another  in  the  next  years. 


i^l:|: 


f 


208 


A  HISTORY  OF  BANKING. 


■I 


m, 


i 


In  a  letter  intended  as  an  apology  for  the  Bank  and  a  reply  to  the  Committee 
of  1832,  Biddle  wrote,  "Undoubtedly  if  the  Bank  had  chosen  to  adopt  such 
a  course,  it  would  have  been  easy,  by  an  immediate  diminution  of  its  loans, 
to  place  itself  out  of  the  reach  of  all  inconvenience;  but  it  would  at  the  same 
time  have  indicted  very  deep  wounds  on  the  community,  and  seriously 
endangered  the  revenue  of  government.  These  exertions  of  mere  power 
have  no  attraction,  and  it  was  deemed  a  far  wiser  policy  to  deal  with  the 
utmost  gentleness  to  the  commercial  community;  to  avoid  all  shocks;  to 
abstain  from  countenancing  all  exaggerations  and  alarm ;  but  to  stand  quietly 
by  and  assist,  if  necessary,  the  operations  of  nature,  and  the  laws  of  trade, 
which  can  always  correct  their  own  transient  excesses.  Accordingly  the 
whole  policy  of  the  Bank,  for  the  last  six  months,  has  been  exclusively 
protective  and  conservative,  calculated  to  mitigate  suffering  and  yet  avert 
danger."* 

The  facts  above  narrated  in  regard  to  the  attempted  curtailments,  etc., 
also  account  for  the  heats  and  chills  of  the  money  market,  which  the  anti-Bank 
men  interpreted  either  as  attempts  of  the  Bank  to  make  its  power  a-lt  and 
dreaded,  or  to  curry  favor.  No  such  explanations  are  called  for.  We  have 
already  seen  ample  evidence  that  such  recurrent  heats  and  chills  were 
incident  to  the  "credit  system."  The  momentum  of  the  movements  which 
had  been  started  in  the  affairs  of  the  Bank  since  1823  fully  suffice  to  account 
for  all  the  phenomena  that  are  presented.  A  candid  student  of  the  history 
of  the  Bank  cannot  say  that  it  was  above  panic-mongering  or  popularity- 
hunting,  but  it  was  quite  fully  occupied,  in  1831  and  1832,  in  mitigating  its 
own  sufferings  and  averting  its  own  dangers,  and  had  no  freedom  to  do 
anything  for  effect. 

Gallatin  saysf  that  the  Bank  of  the  United  States  ceased  to  regulate  the 
currency  in  1832  and  1833,  when  it  expanded  its  discounts  and  stock  invest- 
ments to  185  per  cent,  of  its  capital,  while  sound  city  banks  did  not  carry 
their  profit-bringing  investments  beyond  160  per  cent,  of  their  capital.  It 
was,  he  argues,  only  by  keeping  this  proportion  lower  than  that  of  the  city 
banks  that  the  Bank  of  the  United  States  could  keep  them  debtors,  and  so 
exert  its  regulating  power.  From  this  point  of  time  also  dates  another  very 
important  fact,  namely,  the  complete  predominance  of  Biddies  personal 
authority  in  the  Bank.  He  was  flattered  and  caressed,  was  encouraged  to 
consider  himself  the  prince  of  financiers,  was  allowed  almost  free  control  of 
the  Bank,  and  his  authority  was  accepted  as  decisive  in  many  of  the  great 
financial  enterprises  allied  with  it. 

During  the  spring  and  summer  of  1832,  he  took  quarters  at  the  city  01 
Washington,  from  which  he  directed  the  congressional  campaign  on  behali 
of  the  recharter,  which  was  a  part  of  the  presidential  campaign  which  was 
then  agitating  the  whole  country.  He  and  Jackson  were  personally  pitted 
against  each  other.     If  Biddle  had  succeeded  in  defeating  Jackson,  what 

•  Compare  the  extract  on  page  i8S,  where  he  justifies  by  equally  high  sounding  argument  a  policy  exactly  opposite, 
t  }  Writings,  394.    (1841.) 


i 


THE  BANK  [VAR. 


209 


would  he  himself  have  become  ?  As  it  was,  he  was  talked  of  for  President 
of  the  United  States.*  He  was  not  absolutely  sanguine  of  victory,  and  he 
must  have  felt  what  a  tremendous  stake  he  had  risked,  for  he  put  a  letter  in 
Livingston's  hands  saying  that  he  would  accept  any  charter  to  which  Jackson 
would  consent. t  Jackson  never  fought  for  compromises,  and  nothing  was 
heard  of  this  letter.  Jackson  drew  up  a  queer  plan  of  a  bank  which  he 
thought  constitutional  and  suitable,  but  it  remained  in  his  drawer. t  The 
anti-Bank  men  affirmed  that  Biddle  was  corrupting  Congress,  but  no  positive 
or  serious  assertion  of  this  kind  ever  was  made. 

The  charter  passed  the  Senate  June  1 1,  twenty-eight  to  twenty.  It  had 
a  few  new  features  which  were  obviously  suggested  by  the  experience  of 
the  past.  The  renewal  was  for  fifteen  years.  The  directors  might  appoint 
officers  to  sign  notes  for  less  than  a  hundred  dollars;  no  notes  or  drafts  for 
less  than  $so  might  be  issued  which  were  not  payable  at  the  bank  where 
issued,  and  the  Bank  must  receive  from  other  banks  at  any  branch  the  notes 
issued  at  any  branch;  it  was  to  pay  $200,000  a  year  to  the  United  States  for 
the  benefits  of  the  charter;  Congress  might  at  any  time  forbid  it  to  issue 
notes  of  a  less  denomination  than  $20;  a  list  of  stockholders  was  to  be 
reported  to  the  Secretary  of  the  Treasury  annually,  and  a  list  of  the  stock- 
holders in  any  State  was  to  be  furnished  to  the  Treasurer  of  that  State 
upon  his  request.  It  was  expected  that  the  Bank  would  be  forbidden  to 
issue  notes  under  $20  in  order  to  leave  the  small  note  circulation  to  the  local 
banks. 

In  the  House  no  debate  was  allowed.  Nathan  Appleton  complained  of 
this  because  he  wanted  to  propose  an  amendment;  but  he  says  that  at  that 
time  every  one  took  Biddle's  ipse  dixit,  and  that  politics  forced  the  bill  through 
just  as  it  was.  "My  faith  in  Mr.  Biddle,"  says  Appleton,  "had  at  that  time 
been  materially  shaken.  "§  The  charter  passed  the  House  July  3.  one  hundred 
and  seven  to  eighty  five,  and  was  sent  to  the  President,  July  4.  The  Senate 
voted  to  adjourn  July  16.  It  was  a  clever  device  of  theirs  to  force  Jackson 
to  sign  or  veto  by  giving  him  more  than  ten  days.  They  wanted  to  force  him 
to  a  direct  issue.  Niles  says  that  a  week  before  the  bill  passed  the  best 
informed  were  "as  six  to  half  a  dozen"  whether  the  bill  if  passed  would  be 
vetoed;  but  that  for  the  two  or  three  days  before  the  bill  was  sent  up  a  veto 
was  confidently  expected. ||  Appleton  quotes  Clay  as  having  said:  "Should 
Jackson  veto  it,  1  will  veto  him."  History  does  not  record  that  this  threat 
ever  was  fulfilled. 

The  veto  was  sent  in  July  10.  The  reasons  given  for  it  were:  i. — the 
Bank  would  have  a  monopoly  for  which  the  bonus  was  no  equivalent;  2. — 
one-fifth  of  the  stockholders  were  foreigners;  3. — banks  were  to  be  allowed 
to  pay  the  Bank  of  the  United  States  in  branch  drafts,  which  individuals 

*  Ingersoll,  Second  War,  268. 

t  Ingersoll,  268.     Livingston  was  on  the  side  of  the  Bank  (Hunt's  Livingston,  35}.) 

X  Ingersoll,  283. 

%  5  Proceedings  of  the  Mass.  Hist.  Soc,  279. 

1:42  Niles,  337. 


m- 


Ui. 


i;  ) 


i  I 
I  1 


1 

1 

Bi 

3IO 


//  HISTORY  OF  BANKING. 


could  not  do;  4.— the  States  were  allowed  to  tax  the  stock  of  the  Bank  owned 
by  their  citizens,  which  would  cause  the  stock  to  go  out  of  the  country;  s- — 
the  few  stockholders  here  would  then  control  it; 6. — the  charter  was  uncon- 
stitutional; 7.— the  business  of  the  Bank  would  be  exempt  from  taxation;  8. — 
there  were  strong  suspicions  of  mismanagement  in  the  Bank ;  9. — the  President 
could  have  given  a  better  plan;  10. — the  bank  would  increase  the  distinction 
between  rich  and  poor.  Especial  stress  was  laid  upon  the  second,  fourth, 
and  tenth,  with  an  appeal  to  popular  prejudice  against  foreigners  and  the 
drain  of  specie.  The  operation  of  the  Bank  was  also  represented  as  a  con- 
stant oppression  of  the  people  of  the  West  by  the  people  of  the  East  and  of 
Europe.  This  is  all  an  echo  of  the  arguments  and  notions  of  the  Kentucky 
relief  contest. 

The  bill  was  put  to  vote  in  the  Senate  July  13th,  but  failed  of  two-thirds 
{22  to  iq).  If  the  Bank  was  to  continue  to  exist  it  was  necessary  to  defeat 
Jackson's  re-election.  The  local  bank  interest,  however,  had  now  awakened 
to  the  great  gain  it  would  make  if  the  Bank  of  the  United  States  should  be 
overthrown.  The  safety  fund  banks  in  New  York  were  bound  into  a  solid 
phalanx  by  their  system,  and  they  constituted  a  great  political  power.  The 
chief  crime  alleged  against  the  Bank  of  the  United  States  was  meddling  with 
politics.  It  denied  it,  and  defended  itself  with  such  success  as  to  leave  the 
matter  at  most  very  doubtful.  There  was  no  doubt  whatever  that  the  safety 
fund  banks  of  New  York  were  an  active  political  power  under  Van  Buren's 
control.  They  went  into  this  election  animated  by  the  hope  of  a  share  in 
the  deposits.*  The  great  Bank  also  distributed  pamphlets  and  subsidized 
newspapers  in  the  campaign,  fighting  for  its  existence.  The  Jackson  men 
always  denounced  this  action  of  the  Bank  as  corrupt  and  as  a  proof  of  the 
truth  of  the  charges  that  it  had  done  so  before.  They  unquestionably  meas- 
ured by  two  standards,  one  for  themselves  and  their  allies  and  the  other  for 
the  Bank. 

Jackson's  success  in  the  election  meant  that  the  fate  of  the  Bank  was 
sealed.  Its  charter  would  expire  one  year  before  the  term  for  which  he  had 
been  elected,  but  he  and  those  followers  who  had  been  the  chief  agents  in 
the  Bank  war  were  by  no  means  disposed  to  allow  it  to  run  peacefully  to 
the  allotted  term  of  its  existence.  They  wanted  to  crush  it;  to  win  a  bril- 
liant and  noisy  victory  over  it;  to  punish  it  for  its  audacity  in  resisting  the 
will  of  the  popular  hero;  and  to  vindicate  the  positions  vhich  they  had 
adopted  in  respect  to  it.  The  message  of  1832  was  temperate  in  tone  but 
very  severe  against  the  Bank.  As  above  stated,  the  eagerness  of  the  Bank 
to  get  possession  of  the  three  per  cents,  had  established  a  conviction  in 
Jackson's  own  mind  that  it  was  weak  and  unsound,  and  with  his  character- 
istic disposition  to  exaggerate  any  conviction  which  he  had  once  adopted, 
he  declared  that  it  was  bankrupt.  "An  inquiry  into  the  transactions  of  the 
institution,  embracing  the  branches  as  well  as  the  principal  Bank,  seems 

*  See  Collier's  Speech  in  the  House,  March  13,  1831,  and  8  Adams's  Diary,  493. 


THE  BANK  WAR. 


3'l 


called  for  by  the  credit  which  is  given  throughout  the  country  to  many 
serious  charges  impeaching  its  character,  and  which,  if  true,  may  justly 
excite  the  apprehension  that  it  is  no  longer  a  safe  depository  of  the  money  of 
the  people." 

Here  was  a  new  and  startling  suggestion,  different  from  anything  which 
had  gone  before.  The  corporation  had  been  arraigned  for  violating  its  char- 
ter. The  financial  institution  was  now  arraigned  as  to  its  financial  integrity. 
This  was  the  second  stage  of  the  Bank  war.  Behind  both  of  these,  predomi- 
nating over  them,  but  never  brought  to  trial,  was  the  arraignment  of  the 
plutocratic  engine  for  hostility  to  democracy. 

At  the  present  stage,  however,  the  arraignment  was  positive,  and  if  there 
were  grounds  for  it,  it  was  proper  to  make  it.  It  is  only  a  pity,  if  the 
administration  had  means  of  knowing  how  bad  the  Bank  was,  that  it  did 
not  also  see  how  bad  the  local  banks  were,  and  how  much  more  mischief 
they  were  capable  of  doing,  with  the  same  opportunities,  than  the  big  Bank 
had  done. 

This  charge  by  the  President  produced  considerable  alarm  for  a  time  and 
runs  on  the  branches  occurred  at  some  places.*  That  effect  speedily  passed 
away,  however,  and  what  Jackson  had  said  was  regarded,  by  all  but  his 
strongest  adherents,  as  an  exaggeration  of  malignant  animosity. 

An  agent,  Henry  Toland,  was  appointed  to  investigate  the  Bank  on 
behalf  of  the  Treasury,  with  especial  reference  to  the  point  whether  it  was 
financially  sound  enough  to  make  the  public  deposits  safe.  He  reported 
that  it  was. 

The  Committee  on  Ways  and  Means,  in  the  winter  of  1832-3  also  inves- 
tigated the  Bank  with  respect  to  the  points  raised  in  the  message.  February 
13,  1833,  Polk  reported  a  bil(  from  this  Committee  to  sell  the  stock  owned 
by  the  nation  in  the  Bank.  It  was  rejected,  102  to  91.  The  report  of  this 
Committee  on  its  investigations  is  another  of  the  great  documents  about  the 
Bank.f  The  majority  (Verplank's  Report)  declared  that  the  Bank  was 
sound  and  that  the  deposits  were  safe.  On  January  i,  1833,  the  assets  were 
$80.8  millions,  the  liabilities  $37.8  millions,  leaving  $43  millions  to  pay  $35 
millions  of  capital.  The  circulation  was  $17.5  millions,  specie  $9.0  millions. 
The  State  banks  were  estimated  to  have  $68  millions  circulation,  and  $10 
millions  or  $1 1  millions  specie.  The  minority  (Polk's  Report)  doubted  if  the 
assets  were  all  good.  They  said  that  they  had  not  been  able  to  find  out  clearly 
what  was  the  final  arrangement  made  by  the  Bank  with  respect  to  the 
three  per  cents,  but  it  appeared  that  the  certificate  obligations  of  the  United 
States  had  been  surrendered,  and  that  the  Bank  had,  by  means  of  the  trans- 
action, obtained  a  loan  in  Europe,  The  majority  said  that  the  Bank  had 
receded  from  the  project,  and  that  there  was,  therefore,  nothing  more  to  be 
said  about  it.  In  a  supplementary  report,  the  minority  showed  that  they 
had  succeeded  in  probing  deeper   into  the  actual  condition  of  the  Bank, 


V, 


'       '     L    'I 

If! 


i 


li 


I 


><\ 


r'\\\ 


*  4}  NUm,  }i5. 


t  33  Congress,  3  Session,  Reports,  No.  |3|. 


pq- 


y !  i 


I 


f 

i 

m 

1 

m.  . 

J3*2 


/^  HISTORY  OF  BANKING. 


especially  with  respect  to  the  western  debt.    The  facts  revealed  by  their 
investigation  were  as  follows : 

As  early  as  October  4,  1832,  Biddle  informed  the  directors  that  the  Bank 
was  strong  enough  to  relax  the  orders  given  to  the  western  branches  a  year 
before,  to  contract  their  loans  and  remit  eastward.  He  then  supposed  that 
the  arrangement  with  the  Barings  about  the  three  per  cents  had  been  con- 
cluded, so  that  he  had  obtaineu  a  new  resource  on  that  side  and  need  not 
further  insist  upon  the  curtailment.  He  succeeded  in  meeting  all  the 
inquiries  of  the  Committee  on  Ways  and  Means  in  such  a  way  as  to  satisfy 
the  majority  that  the  debt  in  the  Mississippi  Valley  was  perfectly  sound,  and 
that  there  was  no  re-drawing  going  on  there.  Polk's  supplementary  report, 
however,  contains  conclusive  evidence  that  the  western  branches  were 
in  a  very  critical  condition,  that  there  had  been  drawing  and  re-drawing 
between  the  branches,  and  that  Biddle  knew  it.  September  11,  1832,  the 
cashier  of  the  branch  at  Lexington,  Ky.,  wrote  that  he  was  enduring  a  run. 
Two  hundred  and  seventy  thousand  dollars  was  sent  to  him  from  Philadel- 
phia and  the  branches  nearest  to  him.  A  letter  from  Biddle  to  the  president 
of  the  Nashville  branch,  November  20th,  shows  plainly  that  he  knew  that 
re-drawing  was  going  on.  In  a  letter  from  the  president  of  the 
Nashville  branch  November  22d,  i;  is  said:  "We  will  not  be  able  to 
get  the  debts  due  this  office  paid,.  Indeed  if  any,  it  will  be  a  small  part. 
The  means  are  not  in  the  country."  The  letter  of  the  same  officer  of 
November  24th  reveals  the  operation  distinctly.  "The  parent  bank  and  the 
offices  at  New  York,  Baltimore,  Washington,  Richmond,  Pittsburgh,  Cin- 
cinnati, Louisville,  and  Lexington  have  been  and  still  continue  the  practice 
of  discounting  bills  and  notes  made  payable  at  this  office  and  forwarding 
them  for  collection.  This  has  been  done  this  season  to,  I  would  say,  three 
times  the  amount  of  any  previous  year,  and  to  add  to  our  difficulties  last 
season  we  had  a  very  short  crop  of  cotton,  so  that  our  own  drafts  predicated 
on  the  crop  and  payable  at  New  Orleans  could  not  be  paid  out  of  the  crop, 
in  consequence  of  which  drafts  to  a  very  large  amount  have  been  drawn  by 
the  commission  merchants  of  New  Orleans  on  theit  funds  here  and  made 
payable  at  this  office.  These  drafts  cannot  be  met  when  due  at  this  office 
by  the  payment  of  cash  on  account  of  its  scarcity,  and  no  other  means  could 
be  resorted  to  but  drafts  again  on  New  Orleans  which  our  directors  thought 
right  to  purchase."  From  this  it  is  very  plain  that  the  drafts  in  question 
were  not  created  by  shipments  of  produce  down  to  New  Orleans,  but  con- 
sisted very  largely  of  accommodation  paper.  Again,  on  the  26th  of  Novem- 
ber, the  same  officer  states  that  he  had,  within  a  year,  collected  drafts  for  a 
million  dollars,  for  the  Bank  and  branches,  "which  with  small  exceptions 
have  been  paid  through  our  bill  operations."  The  majority  of  the  Com- 
mittee of  1833  had  interpreted  the  fluctuations  in  the  amount  of  bills  at 
Nashville  as  proof  that  when  the  crops  came  in  the  debts  were  cancelled. 
The  minority  showed  that  these  fluctuations  were  due  to  the  presence  of  the 
"racers  "  at  one  or  the  other  end  of  the  course.    It  is  quite  beyond  question 


THE  BANK  IVAR. 


213 


that  a  mass  of  accommodation  bills  were  chasing  each  other  from  branch  to 
branch  in  the  years  1832  and  1833,  and  that  they  formed  a  mass  of  debt 
which  the  Bank  could  not,  for  the  time,  control. 

On  the  same  day  on  which  Polk's  supplementary  report  was  presented,  and 
without  giving  any  consideration  to  it,  the  House  adopted  a  resolution,  109 
to  46,  that  the  deposits  might  safely  be  continued  in  the  Bank,  The  Bank 
question  was  now  a  party  question,  and  men  voted  on  it  according  to  party, 
not  according  to  evidence.  Whatever  force  might  be  attributed  to  any  of 
the  facts  brought  out  by  Polk  in  the  minority  report,  it  does  not  appear  that 
anybody  in  Congress  really  thought  that  the  Bank  was  insolvent  and  the 
deposits  in  danger.  Polk  himself  did  not  propose  to  withdraw  the  deposits. 
He  wanted  to  avoid  any  positive  action  for  the  time  being,  and  have  a  still 
more  searching  investigation.  "Nothing  short  of  a  personal,  impartial,  and 
thorough  examination  of  the  books  and  papers  of  the  principal  Bank  and 
many  of  its  branches  can  develop  its  policy  and  management,  the  security  of 
its  debt,  and  the  soundness  of  its  copJ.tion."  McDuffy  objected  that  if 
Congress  took  no  action  before  it  adjourned,  Jackson  would  remove  the 
deposits  on  the  principle  that  silence  gives  consent.* 

Although  the  House  of  Representatives  had  thus  answered  the  exhortation 
of  the  President  to  find  out  whether  the  deposits  were  safe  by  categorically 
declaring  that  they  were,  the  wish  and  purpose  to  remove  them  was  not 
checked  in  the  least.  On  the  contrary  a  new  line  of  attack  was  opened  in 
April  by  obtaining  a  report  from  the  government  directors  of  the  Bank.  Three 
of  them  complained  that  they  were  excluded  from  a  knowledge  of  what  was 
being  done.  They  declared  that  the  Exchange  Committee  had  taken  control 
of  the  Bank,  and  they  reported  especially  large  loans  to  Gales  and  Seaton. 
In  August,  four  of  them  joined  in  a  second  report  in  which  further  stress 
was  laid  on  the  large  expenditures  for  printing,  that  is,  for  what  the  anti- 
Bank  men  construed  as  corrupt  efforts  to  win  political  influence.  They  con- 
sidered the  inference  direct  that  the  public  money,  which  was,  perhaps, 
what  was  being  used  for  this  purpose,  should  be  removed  from  the  Bank. 
Everything  which  touches  upon  the  history  of  the  Exchange  Committee 
demands  our  attention  on  account  of  the  great  part  which  that  organization 
played  in  the  final  catastrophe  of  the  Bank.  The  government  directors,  m 
the  former  of  the  above  reports,  say  that  the  directors  had  condemned  this 
arrangement,  and  that,  by  votes  of  October  31,  1823,  and  February  20,  1830, 
they  had  forbidden  the  branches  to  make  use  of  it. 

The  question  naturally  presents  itself:  who  were  the  prime  movers  in 
the  desperate  and  useless  enterprise  of  the  removal  ?  William  B.  Lewisf 
said  that  I  e  did  not  know  who  first  proposed  the  removal  of  the  deposits, 
but  that  it  began  to  be  talked  about  in  the  inner  administration  circles  soon 
after  Jackson's  second  election.  In  the  cabinet,  McLane  and  Cass  were  so 
earnestly  opposed  to  the  project  that  it  was  feared  that  they  would  resign. 


*  44  NilM,  108. 


+  3  Parton's Jackson,  50). 


\ 


t'iM 


I 


m 


1^5 


tl 


hi 
m 


i 


I 


\ 


i;  f 


, 


214 


y4  HISTORY  OF  BANKING. 


McLane  sent  for  Kendall  to  know  why  it  was  desired  to  execute  such  a  project. 
He  had  told  Adams  a  year  before  that  the  Treasury  could  not  go  on  without 
the  Bank.*  Kendall  endeavored  to  persuade  McLane  to  execute  the  removal. 
Cass  finally  said  that  he  did  not  understand  the  question,  and  withdrew  from 
any  share  in  it.  Woodbury  was  neutral.  Barry  assented  to  the  proceeding 
but  had  no  active  share  in  it.  Taney  warmly  favored  it  and  became  Jackson's 
most  trusted  adviser  at  this  time.  Van  Buren  was  at  first  strongly  opposed, 
but  yielded  to  Kendall's  persuasion.  He  wavered  afterward  but  Kendall 
succeeded  in  keeping  him  to  it.  Benton  approved  of  the  proceeding  but  was 
not  active  in  bringing  it  about.  Blair's  chief  point  was  that  the  Bank  would 
corrupt  Congress.!  Lewis  gives  a  report  of  a  conversation  with  Jackson  in 
which  he  tried  to  persuade  Jackson  to  desist  from  the  project.  The  latter's 
points  were:  "1  have  no  confidence  in  Congress."  "If  the  Bank  is  per- 
mitted to  have  the  public  money,  there  is  no  power  that  can  prevent  it  from 
obtaining  a  charter.  It  will  have  it  if  it  has  tn  buy  up  all  Congress;  and  the 
public  funds  would  enable  it  to  do  so."  "If  we  leave  the  means  of  corrup- 
tion in  its  hands,  the  presidential  veto  will  avail  nothing."  The  statements 
in  Kendall's  Autobiography  are  in  perfect  accord  with  these.  They  seem  to 
indicate  that  the  anti-Bank  men  saw  one  chance  yet  remaining  to  the  Bank, 
namely,  to  get  a  two-thirds  majority  in  bot^  Houses  of  Congress  within  the 
next  three  years,  using  corrupt  means  for  .his  purpose,  and  so  to  pass  a 
charter  over  the  veto.  One  must  have  Jackson's  relentless  determination  to 
pursue  an  enemy  to  the  point  of  extermination  before  one  could  spend  great 
energy  to  render  such  a  chance  impossible. 

It  appears  therefore  that  the  removal  of  the  deposits  was  due  first  of  all  to 
Jackson  himself.  He  "took  the  responsibility,"  and  history  must  leave  it 
with  him.  It  is  not  at  all  impossible  that  he  originated  the  purpose  to  make 
the  removal.  The  moving  spirits,  who  had  first  animated  him  with  a  hatred 
to  the  Bank,  and  who  now  were  his  ministers,  although  it  is  very  possible 
that  his  zeal  outstripped  their  impulses,  were  Blair  and  Kendall,  with  Whit- 
ney as  their  tool.  J  « 

As  McLant  persisted  in  his  refusal  to  be  the  agent  of  removal,  he  was 
transferred  to  the  State  Department,  and  William  J.  Duane,  of  Pennsylvania, 
was  appointed  to  the  Treasury.  Jackson  assumed  that  Duane  was  a  man 
like  his  father,  the  editor  of  the  "Aurora,"  and  he  expected  to  find  in  him 
one  who  would  sympathize  with  all  the  motives  of  the  removal.  Duane 
was  a  lawyer.  He  had  never  been  a  politician  or  office-holder,  and  his  tem- 
per and  opinions  were  quite  different  from  those  of  his  father.  On  the  first 
day  of  his  official  life,  June  i,  Whitney  called  on  him  and  made  known  to 
him  the  project  to  remove  the  deposits  from  the  Bank  and  to  use  local  banks 
as  depositories  and  fiscal  agents.  Instead  of  accepting  the  role  for  which  he 
had  been  selected,  Duane  objected  and  refused.  Jackson  sent  to  him  from 
Boston,  where  he  then  was,  a  long  argument  to  try  to  persuade  him  to  con- 


»  8  Adams's  Diary,  457. 

X  Kendall's  Autobiography,  )75 


+  3  Parton'sjacltson,  405. 
10  Adams's  Diary,  1 15. 


THE  BANK  IVAR. 


at  5 


cur  in  the  project.  Upon  Jackson's  return,  in  July,  he  urged  Duane  to  con- 
sent, but  in  vain,  and  an  arrangement  appears  to  have  been  made  with 
Taney  to  take  the  Treasury  if  Duane  should  still  refuse. 

In  August,  Duane  wrote,  "  It  is  true  that  there  is  an  irresponsible  cabal  that 
has  more  power  than  the  people  are  aware  of.  *  *  *  What  I  object  to  is 
that  there  is  an  undercurrent,  a  sly,  whispering,  slandering  system  pursued."* 
October  23,  he  wrote:  "I  had  not  been  twenty-four  hours  in  office  when  I 
felt,  as  r  wrote  my  father,  my  vessel  on  the  breakers.  I  found  that  the 
President  was  in  the  hands  of  men  whom  I  would  not  trust,  personally  or 
politically.  A  contest  at  once  began,  the  object  of  which  was  to  drive  me 
out  of  office,  as  the  ''Globe"  called  me  'a  refractory  subordinate.'"! 
In  his  history  of  the  matter,  written  five  years  later,  he  says:  "1  had  heard 
rumors  of  the  existence  of  an  influence  at  Washington  unknown  to  the 
Constitution  and  to  the  country;  and  the  conviction  that  they  were  well 
founded  now  became  irresistible.  I  knew  that  four  of  the  six  members  of 
the  last  cabinet,  and  that  four  of  the  six  members  of  the  present  cabinet, 
opposed  a  removal  of  the  deposits,  and  yet  their  exertions  were  nullified  by 
individuals  whose  intercourse  with  the  President  was  clandestine.  During 
his  absence  [in  New  England]  several  of  those  individuals  called  on  me  and 
made  many  of  the  identical  observations  in  the  identical  language  used  by 
himself.  They  represented  Congress  as  corruptible,  and  the  new  members 
as  in  need  of  special  guidance.  *  *  *  jn  short,  I  felt  satisfied  from  all 
that  I  saw  and  heard  that  factious  and  selfish  views  alone  guided  those  who 
had  influence  wuh  the  Executive,  and  that  the  true  welfare  and  honor  of  the 
country  constituieo  no  part  of  their  objects." 

in  July  occurred  an  incident  which  increased  very  much  the  animosity 
which  was  felt  against  the  Bank.  The  line  of  action  which  it  adopted  was 
blamed  by  many  of  its  friends. 

July  4,  1831,  a  treaty  was  made  with  France  by  which  she  agreed  to  pay 
certain  claims  for  spoliations  during  the  Napoleonic  wars.  According  to  the 
treaty,  the  first  installment  was  due  February  2,  1833,  but  on  account  of  the 
unpopularity  of  the  treaty  in  France  no  appropriation  had  been  made  to  pay 
it.  The  Secretary  of  the  Treasury  drew  a  draft  for  it  on  the  7th  of  February, 
as  for  a  commercial  debt,  which  draft  he  sold  to  the  Bank  for  $961,240.30. 
Congress  passed  an  act,  March  2,  ordering  the  Secretary  to  loan  this  sum  at 
interest.  The  draft  when  presented  at  the  French  Treasury  could  not  be 
paid,  it  was  protested  and  was  taken  up  by  Hottinguer  for  the  Bank  as 
endorser.  The  Bank  had  put  the  money  to  the  credit  of  the  Treasury,  and 
it  claimed  to  prove,  by  quoting  the  account,  that  the  purchase  money  had 
actually  been  drawn.  Hence  it  declared  that  it  was  out  of  funds  for  twice 
the  amount  of  the  bill.J  It  demanded  15  per  cent,  damages  under  an  old 
law  of  Maryland  which  was  the  law  of  the  District  of  Columbia.  The 
Treasury  repaid  the  purchase  money  and  offered  to  pay  the  actual  damage 

•  Diune,  130.  t  45  Niles,  ayj. 

X  Report  of  a  Committee  of  Directors  of  the  Bank  on  a  Paper  read  in  the  Cabinet. 


n  • 


M : 


i 


I   ^ 


, !,    I ' 


I    i' 


216 


y4  HISTORY  OF  BANKING. 


incurred,  but  no  more.  July  8,  1834,  Biddle  informed  the  Secretary  of  tiie 
Treasury  that  the  sum  of  $170,041  would  be  retained  out  of  a  three  and  one- 
half  percent,  dividend,  payable  July  17,  on  the  stock  owned  by  the  United 
States.  March  2,  1838,  the  United  States  brought  suit  against  the  Bank  in 
the  federal  Circuit  Court  of  Pennsylvania  to  recover  the  sum  so  withheld. 
It  got  judgment  for  $251,243.54.  The  Bank  appealed  to  the  Supreme  Court, 
which,  in  1844,  reversed  the  judgment,  finding  that  the  Bank  was  the  true 
holder  of  the  bill  and  entitled  to  damages.  On  a  new  trial  the  Circuit  Court 
gave  judgment  for  the  Bank.  The  United  States  then  appealed,  on  the 
ground  that  a  bill  drawn  by  a  government  on  a  government  was  not  subject 
to  the  law  merchant.  The  Supreme  Court  sustained  this  view  in  1847,  and 
again  reversed  the  decision  of  the  Circuit  Court.*  No  further  action  was 
taken.  We  must  accept  the  decision  as  proving  that  the  Bank  was 
unwarranted  in  its  action  in  paying  itself. 

In  July  rumors  became  current  that  the  President  intended  to  remove  the 
deposits.  On  the  17th,  Jacob  Barker  insured  the  non -removal  until  the 
meeting  of  Congress  for  25  per  cent,  premium. f  In  August  Kendall  was 
appointed  by  the  Secretary  of  the  Treasury  as  agent  to  negotiate  with  the 
local  banks  of  the  Middle  and  Eastern  States,  so  as  to  find  out  whether  they 
would  undertake  the  fiscal  operations  of  the  government.  His  first  project 
seems  to  have  been  to  group  the  selected  deposit  banks  into  a  combined 
responsibility  analogous  to  the  New  York  safety  fund  system.  He  got  no 
encouragement  for  this;  but  he  obtained  a  number  of  favorable  replies  to 
more  general  inquiries  as  to  a  willingness  to  enter  into  some  arrangement.  J 
This  errand  of  Kendall  of  course  became  known  through  the  newspapers, 
although  it  was  made  as  secret  and  confidential  as  possible.  §  Rives  pub- 
lished an  article  in  the  "Washington  Globe,"  June  23,  1856,  in  which  he 
stated  that  Kendall  was  so  disappointed  at  the  result  of  his  mission  that  he 
wrote  to  Jackson,  who  was  then  at  the  Rip  Raps,  that  the  deposits  could 
not  be  removed.  Blair  was  there  with  Jackson,  and  was  much  influenced 
by  Kendall's  report.  Jackson,  however,  maintained  against  Blair  that  the 
Bank  was  broken.  The  proof  was  that  Biddle  came  to  Washington  to  beg 
that  the  payment  on  the  United  States  loan  might  be  deferred.  He  said  that 
Biddle  was  proud  and  brave  and  never  would  have  humbled  himself  to  this 
step  but  under  necessity.  Kendall,  however,  denied  that  he  had  ever 
written  that  the  deposits  could  not  be  removed.  ||  Commenting  on  the 
results  of  Kendall's  mission,  Duane  said:  "  It  was  into  this  chaos  that  1  was 
asked  to  plunge  the  fiscal  concerns  of  the  country  at  a  moment  when  they 
were  conducted  by  the  legitimate  agent  with  the  utmost  simplicity,  safety, 
and  dispatch." 

The  Bank  had  warning  of  what  was  intended  from  the  public  rumors,  if  in 
no  other  way.  August  13,  strict  orders  were  issued  to  restrict  discounts  and 
to  cut  off  extensions,  buying  only  short  bills,  especially  at  the  western  offices. 


in 


*  2  Howard,  711.    5  Howard,  )8i. 
i  44  Niles,  375. 


+  44  Niles,  353- 


X  23  Tonf;.,  iSess.,  Sen.  Doc.,  No.  17. 
I  Hudson's  Journalism,  a;o. 


:V^ 


THE  BANK  WAR. 


ai7 


and  also  to  restrict  purchases  to  bills  which  would  throw  funds  into  the 
Atlantic  cities.  These  orders  were  repeated  and  made  more  stringent 
October  }.  Ninety  days  was  too  short  a  time  for  the  "racers,"  considering 
the  difficulty  of  communication.  It  appears  that  they  had  also  been  reduced 
by  steady  pressure  during  the  last  twelve  months.  The  cry  now  was  that 
the  great  Bank  was  making  the  stringency  in  order  to  show  its  power.  The 
threat  ot  removal  affected  the  money  market.  v:  ?  r^ 

The  wording  of  the  Bank  charter  was  that  the  Secretary  of  the  Treasury 
might  remove  the  deposits,  and  the  laws  constituting  the  Treasury  Depart- 
ment give  to  the  Secretary  a  certain  independent  authority  and  responsibility, 
although  this  is  inconsistent  with  his  position  as  a  subordinate  who  may  be 
peremptorily  removed.  Jackson  now  said  to  Duane:'"  I  take  the  responsi- 
bility," a  phrase  which  became  current  in  the  political  slang  of  the  next  ten 
years.  On  the  i8th  of  September,  he  read  in  the  meeting  of  his  cabinet  a 
paper  prepared  by  Taney,*  in  which  he  argued  that  the  deposits  ought  to  be 
removed,  the  grounds  being  the  three  per  cents,  the  French  bill,  the  political 
activity  of  the  Bank,  and  its  unconstitutionality.  'He  would  not  dictate  to 
the  Secretary,  but  he  took  all  the  responsibility  of  deciding  that,  after  October 
I,  no  more  public  money  should  be  deposited  in  the  Bank,'  and  that  the  cur- 
rent drafts  should  withdraw  all  money  then  in  it.  The  "Globe"  announced 
this  decision  September  20.  Duane  refused  to  give  the  order  and  refused  to 
resign.  He  was  dismissed  September  25.  In  a  letter  which  he  wrote  in 
1837,  he  complained  that  he  had  been  politically  outlawed  on  all  sides  for 
having  had  the  courage  to  do  right,  but  rebelling  against  party  discipline,  f 
Immediately  upon  his  dismissal  he  published  the  final  correspondence 
between  the  President  and  himself,  in  which  he  gave  fifteen  reasons  why 
the  deposits  ought  not  to  be  removed.  One  of  them  was:  "  I  believe  that 
the  efforts  made  in  various  quarters  to  hasten  the  removal  of  the  deposits  did 
not  originate  with  patriots  or  statesmen,  but  in  .schemes  to  promote  factious 
and  selfish  purposes."  He  ascribed  it  chiefly  to  vindictiveness.  The  admin- 
istration press  immediately  turned  upon  Duane  with  fierce  abuse.  Taney 
was  transferred  to  the  Treasury  Department  and  gave  the  order  for  the 
removal.  He  told  Kendall  that  he  was  not  a  politician,  and  that,  in  taking  a 
political  office,  he  sacrificed  his  ambition,  which  was  to  be  a  Judge  of  the 
Supreme  Court.  J 

No  political  act  before  the  civil  war  created  such  intense  excitement  as 
the  removal  of  the  deposits.  We  may  pass  over  the  political  aspects  of  it; 
but  very  exaggerated  financial  importance  was  attached  to  it,  and  for  that 
generation  it  continued  to  be  the  point  from  which  the  subsequent 
vicissitudes  of  banking  and  currency  were  reckoned.  No  one,  how- 
ever, ever  told  why  this  act  had  such  great  importance.  It  produced  a  panic 
perhaps  because  the  alarm  was  not  rational.  §  The  stock  of  the  Bank  fell 
one  or  two  points  at  New  York,  but  it  recovered  as  soon  as  the  paper  read 


i^l<  ii, 


•  Tyler's  Taney,  104. 


t  New  York  "Times,"  May  13,  1894. 
{  45  Niles,  65. 


X  KeiuUl's  Autobiography,  386. 


m 


TgHfc'ftLlMWWg'jaWJIJMftlfclMtieiMJIIflM'.WLL' 


■  Hi'  ij»  iWiHyi-  Mil  i-H  ivvts  - 


2t8 


A  HISTORY  OF  BANKING. 


IP 


'  h 


in  the  cabinet  was  published,  because  the  grounds  were  only  the  old  charges, 
which,  as  we  have  said,  the  investing  public  considered  to  be  entirely 
refuted.  We  find  it  suggested  that  the  politicians  were  short  of  the  stock 
and  were  in  great  trouble  because  it  did  not  fall.*  The  Bank  replied  to  the 
President's  paper  by  a  long  statement,  no  doubt  written  by  Biddle,  in  which 
he  took  up  seriatim  the  points  raised  by  Jackson. 

The  average  monthly  balance  in  the  Bank  to  the  credit  of  the  Treasury, 
from  1818  to  1833,  was  $6.7  millions.     In  1832  it  was  $1 1.3  millions,  and  in 

1833,  $8.5  millions.  In  September  of  the  latter  year  it  was  $9.1  millions.f 
It  should,  however,  be  noted  that  the  deposits  on  the  ist  of  January,  1833, 
excluding  the  credits  of  public  officers,  were  less  than  eight  hundred  thou- 
sand dollars,  and  that  the  amount  in  October  had  been  deposited  within  the 
preceding  nine  months,  having  accumulated  gradually.  Nothing  was  drawn 
from  the  Bank  by  the  removal.  It  was  not  compelled  to  call  any  of  its  loans 
at  the  time  that  step  was  I'nnounced.    The  amount  on  the  ist  of  January, 

1834,  was  nearly  §8so,oo.  •' '  '■  v:is  not  reduced  to  zero  until  the  end  of 
183'j.J  It  is  difficult  to  s  h(  .  transaction  could  have  had  any  great 
financial  effect. 

There  was,  however,  another  and  lar  more  serious  ground  of  anxiety  than 
the  undefined  panic  on  accou'  '  o*"  the  removal  of  the  deposits.  Those  who 
could  remember  1817,  and  wh>  i  .,1  d  w  ;  '  ,fy  supposed  to  be  the  abso- 
lute demonstration  of  that  period, §  were  alar''  jJ  .  ♦  he  prospect  that  its  evils 
were  to  be  renewed.  This  alarm  was  best  expressed  by  Binney :  "  It  is  here 
that  we  find  the  pregnant  source  of  the  present  agony — it  is  in  the  clearly 
avowed  design  to  bring  a  second  time  upon  this  land  the  curse  of  an  unregu- 
lated, uncontrolled  State  bank  paper  currency.  We  are  again  to  see  the 
drama,  which,  already  in  the  course  of  the  present  century,  has  passed  before 
us  and  closed  in  ruin.  If  the  project  shall  be  successful,  we  are  again  to  see 
these  paper  missiles  shooting  in  every  direction  through  the  country — a 
derangement  of  values — a  depreciated  circulation — a  suspension  of  specie 
payments — then  a  further  extension  of  the  same  detestable  paper,  with  fail- 
ures of  trade  and  failures  of  banks  in  its  train — to  arrive  at  last  at  the  same 
point  from  which  we  departed  in  1817." 

The  removal  of  the  deposits  is  the  date  of,  and  in  some  sense  the  cause 
of,  the  multiplication  of  local  banks,  ||  and  the  beginning  of  the  series  of 
financial  errors  and  disasters  which  marked  the  next  ten  years. 

Kendall  reported  to  the  cabinet  the  result  of  his  negotiations  with  the 
banks.  One  bank  was  objected  to  on  "  political  grounds,  "f  Twenty-three 
were  selected  before  the  end  of  the  year. 

The  contract  between  the  Treasury  and  the  deposit  banks,  in  September, 
1833,  provided  that  each  bank  should  receive  all  deposits  offered  by  the 
Treasury,  whether  in  coin,  notes  of  the  Bank  of  the  United  States  or  its 
branches,  notes  of  any  neighboring  bank  convertible  into  coin,  or  notes  of 


•45  Miles,  150. 

$  See  page  69. 


t  23  Cong.,  I  Sess.,  i  Senate,  No.  iti. 
I  See  Chap,  i),  J  2. 


X  24  Cong.,  3  Sess.,  2  Hxec,  No.  77. 
5  Kendall's  Autobiography,  387. 


I. 


THE  BANK  U^AR. 


219 


any  bank  which  the  deposit  bank  is  for  the  time  being  in  the  habit  of 
receiving.  If  the  deposit  exceeds  half  of  the  capital  of  the  bank,  or  for  any 
other  reason  the  Secretary  thinks  it  necessary,  the  bank  is  to  give  collateral 
security  for  the  deposit.  It  is  to  report  to  the  Secretary  weekly  and  submit 
its  books  to  him  or  his  agent  whenever  he  shall  require.  It  is  to  transfer  the 
deposits  upon  the  drafts  of  the  Secretary  to  any  other  deposit  bank  without 
any  charge  of  any  kind  whatsoever,  but  it  is  to  have  reasonable  notice  when 
this  transfer  will  be  required.  It  is  also  to  furnish  the  Secretary  with  exchange 
on  London  at  the  current  market  price,  and  to  guarantee  the  bills  without 
any  charge  whatever.  The  Secretary  may  discharge  the  bank  from  the 
service  of  the  government  whenever  the  public  interest  may  require. 

January  30,  1834,  Silas  Wright  made  a  statement  on  the  deposit  system 
which  was  understood  to  be  authoritative.  He  said  that  the  Executive  had 
resumed  the  control  of  the  public  money,  which  belonged  to  him  before  the 
national  bank  was  chartered;  that  the  administration  would  bring  forward  no 
law  to  regulate  the  deposits,  but  that  the  Executive  would  proceed  with  the 
experiment  of  using  State  banks.  March  i8th,  Webster  proposed  a  bill  to 
extend  the  charter  of  the  Bank  of  the  United  States  for  six  years,  without 
monopoly,  the  public  money  to  be  deposited  in  it,  it  to  pay  to  the  Treasury  two 
hundred  thousand  dollars  annually,  and  none  of  its  notes  to  be  for  less  than 
twenty  dollars.  The  Bank  men  would  not  agree  to  support  it.  April  15, 
Taney  sent  to  the  Committee  on  Ways  and  Means  a  plan  for  the  organization 
of  the  deposit  bank  system ;  but  it  was  a  mere  vague  outline.  December  1 5, 
Woodbury  sent  in  a  long  essay  on  currency  and  banking,  but  no  positive 
scheme  or  arrangement.  It  was  not  until  June,  1 836,  that  the  deposit  system 
was  regulated  by  law.  The  administration,  however,  had  some  definite  ideas 
about  what  it  ought  to  require  of  the  deposit  banks.  Taney,  in  his  communi- 
cation of  April  !=),  proposed  rules  by  which  a  broader  specie  basis  could  be 
obtained.  Monthly  reports  were  to  be  required;  no  deposit  bank  was  to 
deal  in  any  stocks  except  those  of  the  United  States  and  of  the  State  in  which 
it  was.  After  March  3,  1836,  no  bank  was  to  be  a  depository  which  issued 
notes  under  $5,  nor  were  the  notes  of  any  such  to  I  c  received  in  payments 
to  the  United  States.  The  banks  treated  these  regulations  with  the  same 
indifference  with  which  they  had  treated  those  of  the  States. 

Taney  desired  that  Kendall  should  be  president  of  the  Bank  of  the 
Metropolis  and  organize  the  system,  but  he  declined.  The  Bank  of  the  Me- 
tropolis was  then  asked  to  admit  Whitney  as  agent  and  correspondent  of 
the  deposit  banks.  The  bank  refused  to  do  this,  and  the  plan  of  making 
that  bank  the  head  of  the  system  mas  given  up.*  The  deposit  banks  were 
recommended  to  employ  Whitney  as  agent  and  correspondent  at  Washington 
for  their  dealings  with  the  Treasury.  He  did  not  escape  the  charge  of 
abusing  the  power  which  this  position  gave  him,  and  an  investigation  in 
1837  produced  evidence  very  adverse  to  his  character.     From  the  correspond- 

»  Kendall's  Autobiography,  588. 


220 


A  HISTORY  OF  BANKING. 


ence  between  him  and  the  banks  which  was  then  published,  it  is  plain  that 
the  chief  argument  which  was  used  to  support  an  application  for  a  share  of 
the  deposits  or  other  favor  was  political ;  above  all,  devotion  to  Jackson  and 
hatred  of  the  Bank  of  the  United  States. 

Taney  assumed  that  the  Bank  of  the  United  States  would  make  a  spiteful 
attempt  to  injure  the  deposit  banks  by  calling  on  them  to  pay  balances 
promptly.  He  therefore  placed  some  large  drafts  on  the  Bank  of  the  United 
States  in  the  hands  of  officers  of  the  deposit  banks  at  New  York,  Philadelphia, 
and  Baltimore,  so  that  they  might  offset  any  such  malicious  demand. 
Otherwise  the  drafts  were  not  to  be  used.  The  Bank  took  no  steps  which 
afforded  even  a  pretext  for  using  these  drafts,  but  the  president  of  the  Union 
Bank  of  Maryland  cashed  one  of  them  for  one  hundred  thousand  dollars  a 
few  days  after  he  got  it,  and  used  the  money  in  stock  speculations.*  For 
fear  of  scandal  this  act  was  passed  over  by  the  Executive,  but  it  led  to  an 
investigation  by  Congress.  Taney  was  a  stockholder  in  the  Union  Bank.f 
The  Manhattan  Company  also  used  one  of  these  drafts  for  five  hundred 
thousand  dollars.  Here,  then,  at  the  very  outset,  experience  was  made  of 
the  reliance  which  could  be  placed  on  the  "pet  banks"  in  confidential 
dealings  with  them. 

Taney  claimed  the  right  to  give  these  transfer  drafts,  by  way  of  arbitra- 
tion between  the  banks,  by  virtue  of  the  precedent  set  by  Crawford.  Here 
we  have  a  full-fledged  administrative  abuse,  the  steps  of  whose  growth  we 
have  noticed  all  the  way  down  from  its  beginning  by  Alexander  Hamilton.  J 

By  a  resolution  of  the  House  of  Representatives  of  Pennsylvania, 
December  20,  1833,  the  Committee  on  Ways  and  Means  were  directed  "to 
inquire  how  far  the  public  interests  might  be  promoted  by  the  continuation 
of  the  operations  of  the  Bank  of  the  United  States  under  a  charter  from  this 
Commonwealth,  should  its  present  charter  not  be  renewed  by  the  United 
States."  In  their  report  on  this  resolution  the  Committee  expressed  the 
opinion  that  the  Bank,  under  a  State  charter,  would  speedily  run  down 
into  a  mere  State  bank,  as  the  Bank  of  North  America  had  done.  They 
thought  that  it  was  essential  to  a  national  bank  that  it  should  be  under  the 
federal  courts,  which  a  State  bank  would  not  be;  that  it  should  be  charged 
with  the  collection  of  the  revenue,  because  otherwise  it  could  not  regulate 
the  local  banks;  and  that  it  should  have  branches.  While  they  did  not 
report  against  the  proposal,  they  gave  the  weight  of  argument  against  it. 

The  session  of  1833  and  1834  was  the  most  excited  that  took  place  before 
the  civil  war.  Of  course  the  President's  message  and  the  report  of  the  Secre- 
tary of  the  Treasury  must  justify  what  had  been  done.  The  President  threw 
the  justification  of  it  chiefly  on  the  report  of  the  government  directors  of  the 
Bank,  which  showed,  as  he  said,  that  the  Bank  had  been  turned  into  an  elec- 
tioneering engine.     This  referred  to  the  documents  which  it  had  distributed 


•  Kendall's  Autobiography,  389;  23  Cong.,  1  Sess.,  1  Sen.  No.  16,  p.  339. 

t  Q.uincy's  Adams,  117.     He  sold  his  stock  February  18,  1834.  23  Cong.,  1  Sess.,  Sen.  Doc.  238. 

t  See  pages  3),  35,  102. 


THE  BANK  IVAR. 


221 


in  the  campaign.  The  Secretary  said  that,  although  he  alone  had  the  power  to 
remove  the  deposits,  and  Congress  could  not  order  it  to  be  done,  yet  that 
the  Secretary  must  discharge  any  duties  laid  upon  him  under  the  supervision 
of  the  President.  He  put  the  removal  which  had  been  accomplished  on  the 
ground  of  public  interest.  The  people  had  shown  in  the  election  that  they 
did  not  want  the  Bank  rechartered.  It  was  not  best  to  remove  the  deposits 
suddenly  when  the  charter  shoiild  expire.  He  tried  to  show  from  the 
statistics  of  the  Bank  that  it  had  operated  inflations  and  contractions,  and  he 
suggested  that  this  had  been  done  for  political  effect.  He  reiterated  the 
charges  of  improper  expenditures.  "Some  of  the  items  accounted  for  suffi- 
ciently show  in  what  manner  it  was  endeavoring  to  defend  its  interests.  It 
had  entered  the  field  of  political  warfare,  and  as  a  political  partisan  was 
endeavoring  to  defeat  the  election  of  those  who  were  opposed  to  its  use.  It 
was  striving  by  means  of  its  money  to  control  the  course  of  the  government 
by  driving  from  power  those  who  were  obnoxious  to  its  resentment." 

All  the  debates  and  proceedings  of  this  session  were  passionate  and 
violent.  The  Senate  refused,  25  to  20,  to  confirm  the  reappointment  of  the 
government  directors,  who  were  said  to  have  acted  as  the  President's  spies. 
Jackson  sent  the  names  in  again,  with  a  long  message,  and  they  were  again 
rejected,  30  to  11.  Taney's  appointment  as  Secretary  of  the  Treasury  was 
rejected.  He  was  then  nominated  for  judge  of  the  Supreme  Court  and  again 
rejected.  In  January,  Jackson  sent  in  a  message  complaining  that  the 
Bank  still  kept  the  books,  papers,  and  funds  belonging  to  the  pension 
agency,  with  which  it  had  hitherto  been  charged.  The  Senate  voted.  May 
26th,  26  to  17,  that  the  Secretary  of  War  had  no  authority  to  remove  the 
pension  funds  from  the  Bank. 

December  nth,  Clay  moved  a  call  for  a  copy  of  the  paper  read  in  the 
cabinet.  Jackson  refused  it,  on  the  ground  that  Congress  had  no  business 
with  the  paper.  Clay  introduced  resolutions  which  finally  took  this  shape : 
"Resolved — First,  That  the  President,  in  the  late  executive  proceedings  in 
relation  to  the  public  revenue,  has  assumed  upon  himself  authority  and 
power  not  conferred  by  the  Constitution  and  the  laws,  but  in  derogation  of 
both.  Second,  That  the  reasons  assigned  by  the  Secretary  for  the  removal 
are  unsatisfactory  and  insufficient."  January  7th,  Benton  offered  a  counter- 
resolution  that  Biddle  should  be  called  to  the  bar  of  the  Senate  to  give  the 
reasons  for  the  recent  curtailments  of  the  Bank,  and  to  answer  for  the  use  of 
its  funds  in  electioneering.  February  5th,  Webster  reported  from  the  Com- 
mittee on  Finance,  on  the  subject  of  the  removal  and  on  Clay's  resolutions. 
The  second  of  these  was  at  once  adopted,  28  to  18.  March  28th,  the  first 
resolution  was  adopted,  26  to  20.  April  15th,  Jackson  replied  to  the  latter 
resolution  with  a  protest,  construing  it  as  an  invasion  of  Executive  rights 
and  independence.  The  Senate  refused  to  receive  this  protest,  27  to  16, 
declaring  it  a  breach  of  privilege.  The  administration  press  next  directed  its 
attacks  against  the  Senate  as  an  institution.  This  attack  was  organized  in 
support  of  Benton's  proposition  to  expunge  the  resolution  of  censure  on  the 


r  , !  ) 


? 


223 


A  HISTORY  OF  BANKING. 


President  from  the  records  of  the  Senate;  so  that  one  of  the  bitterest  purely 
political  struggles  in  the  history  of  the  country,  before  the  civil  war,  grew 
out  of  the  removal  of  the  deposits.  Jackson's  supporters  won  control  of  the 
Senate  in  1836,  and  the  resolution  was  expunged,  January  16,  1837. 

In  the  House,  Polk  reported  from  the  Committee  on  Ways  and  Means, 
March  4,  1834,  supporting  Jackson  and  Taney  in  all  their  positions  about  the 
removal.  He  offered  four  resolutions,  which  were  passed,  April  4th,  as 
follows: — First,  That  the  Bank  ought  not  to  be  rechartered,  132  to  82; 
second,  that  the  deposits  ought  not  to  be  restored,  1 18  to  103;  third,  that 
the  State  banks  ought  to  be  depositories  of  the  public  funds,  117  to  105; 
fourth,  that  a  select  committee  should  be  raised  on  the  Bank  and  the  com- 
mercial crisis,  171  to  42.  The  committee  last  mentioned  was  appointed, 
and  endowed  with  inquisitorial  power,  which  J.  Q.  Adams  thought  was 
unjust  and  un-American.  They  reported.  May  22d,  that  the  Bank  had 
resisted  all  their  attempts  to  investigate,  which  was  so  far  true  that  the  Bank 
had  drawn  the  line  beyond  which  they  would  not  allow  the  committee  to 
go.  The  majority  proposed  that  the  directors  should  be  arrested  and 
brought  to  the  bar  of  the  House.  The  minority  of  the  committee  justi- 
fied the  Bank  in  the  position  which  it  had  taken,  and  while  they  were  very 
careful  to  ascribe  only  the  purest  motives  to  the  majority,  yet  showed 
strong  disapproval  of  the  line  of  examination  which  had  been  attempted; 
that  was,  to  find  evidence  to  support  the  charges  against  the  Bank  and  its 
officers  in  the  books  and  in  an  inquisitorial  examination  of  the  officers 
themselves. 

The  Senate  also  undertook  another  investigation.  It  instructed  the 
Committee  on  Finance,  June  30th,  to  investigate  ail  the  allegations  against 
the  Bank  made  by  Jackson  and  Taney  in  justification  of  the  removal.  This 
produced  Tyler's  report  of  December  18,  1834,  which  is  very  valuable  for  the 
history,  but  was  very  little  heeded  at  the  time.  Its  conclusions  were  all 
favorable  to  the  Bank.*  Tyler  appended  to  his  report  statistical  statements 
of  the  condition  of  the  Bank,  which  show  what  its  internal  history  had  been 
during  the  last  years.  It  had  drawn  back  from  the  perilous  position  into 
which  it  was  drifting  under  the  western  debt,  and  the  operation  of  the 
branch  drafts,  in  the  spring  of  1832,  and  had  improved  its  whole  status  down 
to  October,  1833,  when  it  was  extremely  strong. 

We  have  already  noticed  the  panic  which  was  occasioned  by  the  removal 
of  the  deposits  and  which  may  properly  be  so  called,  if  we  are  correct  in 
the  opinion  that  there  was  no  rational  ground  for  commercial  distress  in 
that  proceeding.  During  the  winter  of  1833-4,  there  was  a  stringent  money 
market,  and  commercial  distress  due  to  other  causes,  which  were  indeed 
incidental  to,  or  contingent  on,  the  removal.  The  State  banks  were  trying 
to  strengthen  themselves  and  to  put  themselves  on  the  level  of  the  Treasury 
requirements,  in  the  hope  of  getting  a  share  of  the  deposits.     It  was  they 


•  a3  Cong.,  i  Sess.,  i  Sen.  Doc.  No.  17. 


THE  BANK  WAR, 


221 


who  operated  a  bank  contraction  during  the  winter.  It  was  more  than  a 
year  before  the  new  system  began  to  operate  in  place  of  the  old.  Stocks 
fell  from  20  per  cent,  to  50  per  cent.  In  February,  1834,  sterling  exchange  was 
tlown  to  98,  par  being  108.  There  was  a  great  fall  in  prices,  and  commercial 
paper  rose  to  two  percent,  or  three  per  cent,  per  month.*  A  great  number 
of  banks  failed  on  account  of  the  shrinkage  in  securities.  In  New  York, 
State  stocks  were  loaned  to  the  banks  to  ward  off  an  apprehended  suspension 
of  specie  payments.  Hammond  says  that  this  frustrated  the  desire  of  the 
Bank  of  the  United  States  to  force  a  suspension. f  Nathan  Appleton  ascribed 
the  commercial  crisis  to  Biddle.  "No  one  can  doubt  that  his  contractions  in 
1834,  so  distressing  to  the  community,  were  pushed  beyond  reasonable 
measure,  for  the  purpose,  by  that  means,  of  effecting  the  renewal  of  the 
charter,  under  the  pretense  of  the  necessity  of  preparing  for  winding  up  its 
concerns,  whilst  his  subsequent  expansion  had  a  full  share  in  producing  the 
mad  and  wild  speculations  of  1835-6."!  In  another  letter,  in  1857,  Appleton 
said  that,  in  March,  1834,  a  committee  of  New  York  merchants  and  bankers 
told  Biddle  that,  unless  the  Bank  desisted  for  thirty  days  from  any  calls  on 
the  other  banks,  he  would  be  denounced  on  the  Merchants'  Exchange  for 
"flagitiously  endeavoring  to  force  Congress  to  grant  him  a  charter."  When 
the  thirty  days  were  up  he  renewed  the  pressure  and  kept  it  up  until  July, 
when  Congress  adjourned.  The  "pressure  was  wholly  owing  to  the 
unprincipled  action  of  Mr.  Biddle.  "§  If  this  story  is  correct,  it  seems  that  the 
merchants  and  bankers  unwarrantably  intimidated  Biddle  from  collecting 
debts  justly  due  to  the  Bank  for  a  period  of  thirty  days. 

The  anti-Bank  men  pointed  to  the  statements  of  the  Bank  as  obvious 
proof  of  panic-making  and  popularity-hunting.  In  eighteen  months  from 
January,  1831,  to  July,  1832,  when  it  was  working  for  the  renewal,  its  loans 
increased  $23.4  millions;  in  the  next  eighteen  months  they  were  reduced 
$21.9  millions,  as  was  said,  out  of  spite  and  revenge,  to  show  its  power;  in 
the  next  six  months  they  were  increased  again  $19.6  millions. 

Benton  and  others  denied  that  there  was  any  distress,  and  said  that  the 
petitions  presented  to  Congress  were  gotten  up  for  effect,  to  frighten  Jackson 
into  restoring  the  deposits.  Delegations  went  to  Washington  to  represent 
to  Jackson  the  state  of  the  country.  He  became  violent ;  told  the  delegations 
to  go  to  Biddle,  that  he  had  all  the  money;  that  the  Bank  was  a  monster,  to 
which  all  the  trouble  was  due.  In  answer  to  a  delegation  from  Philadelphia, 
February  11,  1834,  Jackson  sketched  out  the  bullionist  program,  which  the 
administration  pursued  from  this  time  on.  Up  to  this  time  it  had  been 
supposed  that  Jackson  rather  leaned  to  that  class  of  paper  money  notions 
represented  by  the  big  banks  of  the  States  of  the  Southwest.  He  now 
proposed,  as  an  "experiment,"  to  persuade  the  local  banks,  by  the  induce- 
ment of  the  deposits,  to  come  up  to  a  higher  and  higher  standard,  until  there 


4|«H 


'■•  W 


•  lUguct;  Currency  and  Banking,  196. 


t  3  Hammond,  440. 
I  13  Banker's  Magazine,  410, 


i  Appleton;  Currency,  17.    (1841.) 


li'.l 


i-l! 


334 


A  HISTORY  OF  BANKING. 


»  W 


r 


should  be  no  bunk  notes  under  $20,  and  a  large  part  of  the  circulation  should 
consist  of  coin.  For  the  next  ten  years  there  were,  therefore,  four  schools 
of  opinion  and  four  systems  of  currency  contending  for  the  mastery:  the 
national  bank  system,  the  local  deposit  bank  system,  the  bullionist  system, 
and  a  government  inconvertible  treasury  note  system. 

For  a  short  time  in  the  summer  of  1834,  the  currency  was  in  a  very 
sound  condition.  The  Bank  of  the  United  States  was,  by  the  necessity  of 
its  position,  under  strong  precautions.  The  local  banks,  by  their  efforts  to 
meet  the  Treasury  requirements,  were  stronger  than  ever  before.  In  May 
it  was  said  that  there  was  more  specie  in  the  United  States  than  ever  before.* 
Silver  was  imported  during  the  fiscal  year  to  the  value  of  $3.7  millions.  A 
statement  which  pretended  to  give  the  ratio  of  circulating  paper  to  specie  in 
the  different  States  showed  that,  with  the  exception  of  Tennessee,  Missis- 
sippi, Maine,  Connecticut,  Massachusetts,  and  South  Carolina,  the  ratio  was 
under  7  to  i.f 

This,  however,  was  a  mere  transition.  As  we  shall  see  in  the  next 
chapter,  the  effect  of  the  transfer  of  the  government  money  to  the  local 
banks  was  that  their  number  was  greatly  increased  and  a  bank  inflation  was 
produced.  J  The  state  of  things  which  existed  in  the  summer  of  1834  passed 
as  mere  phenomena  of  transition. 

November  5,  1834,  Secretary  Woodbury  informed  the  Bank  of  the  United 
States  that  the  Treasury  would  not  receive  branch  drafts  after  January  i, 
1835.  This  led  to  a  spirited  correspondence  with  Biddle  in  which  the  latter 
defended  the  drafts  as  good,  both  in  law  and  in  finance. § 

In  the  message  of  1834  Jackson  recapitulated  all  the  old  complaints  against 
the  Bank  and  recommended  that  its  notes  should  no  longer  be  received  by 
the  Treasury,  and  that  the  stock  owned  by  the  nation  should  be  sold.  Jan- 
uary 10,  1835,  Polk  introduced  a  bill  to  forbid  the  receipt  of  notes  of  the 
Bank  of  the  United  States  at  the  Treasury,  unless  the  Bank  would  pay  at 
once  the  dividend  which  had  been  withheld  in  1833.  Bills  were  also  pro- 
posed for  regulating  the  deposits  in  the  deposit  banks,  but  no  action  was 
taken  on  any  of  these  matters,  and  the  session  was  fruitless  as  to  banking 
and  currency.  The  Committee  on  Finance  of  the  Senate  was,  however, 
ordered  to  investigate  the  specie  transactions  of  the  Bank. 

In  the  message  of  183s,  Jackson  referred  to  the  war  which,  as  he  said, 
the  Bank  had  waged  on  the  government  for  four  years  as  a  proof  of  the  evil 
effects  of  such  an  institution.  He  declared  that  the  Bank  belonged  to  a  sys- 
tem of  distrust  of  the  popular  will,  as  a  regulator  of  political  power,  and  to  a 
policy  which  would  supplant  our  federal  system  by  a  consolidated  govern- 
ment. Thus  at  the  end  of  the  Bank  war  we  meet  again  with  that  allegation 
in  regard  to  the  constitution  and  purpose  of  the  Bank  as  a  plutocratic  engine, 
which  Ingham  had  formulated  in  his  letter  to  Biddle,  October  5,  1829. 


•  46  NUes,  188. 


t  47  Nilcs,  20. 
1 1)  Cong.,  1  Sesj.,  2  Sen.  Doc,  No.  i). 


X  Chapter  XIII,,  J  a. 


||iliB^iiiiriWiT.ij;i?iTrniiii.i.ViiJiiii.iiij.l.i.i.iiiiij 


CHAPTER    XIII. 
Measures  and  Events  Antecedent  to  the  CRii^is  of  1837. 


§  I. — The  United  States  Biiiih  of  Tettnsylvania. 

HE  Committee  of  Stockholders  to  investigate  the  Bank  of  the 
United  States,  January  4,  1841,  said:  "The  origin  of  the 
course  of  policy  which  has  conducted  \o  the  present  situation 
of  the  affairs  of  the  institution  dates  bt  vond  the  period  of  the 
recharter  by  the  State."  We  shall  therefore  use  the  informa- 
tion which  that  Committee  obtained  in  regard  to  the  internal  history  of  the 
Bank,  so  as  to  present  both  that  and  the  external  history  at  the  same  time. 
"When  it  was  perceived,"  the  Committee  go  on  to  say,  "that  the 
charter  of  the  late  Bank  of  the  United  States  would  not  be  renewed  or 
extended  by  Congress,  the  president  and  directors  commenced  winding  up 
its  concerns,  and  among  the  first  measures  taken  to  that  end  was  to  sell  or 
dispose  of,  as  far  and  as  speedily  as  could  be  effected,  the  assets  of  its  sev- 
eral branches.  This  was  generally  done  to  State  banks,  who  gave  for  them 
their  obligations,  payable  by  installments  at  distant  periods.  At  the  same 
time  the  policy  was  adopted  of  converting  the  active  debt  into  loans  upon 
the  security  of  stocks,  by  which  permanent  investments  might  be  provided 
for  the  capital  of  the  bank  during  the  long  period  of  its  anticipated  liquida- 
tion." On  the  6th  of  March,  183s.  "the  president  submitted  to  the  Board 
a  general  view  of  the  situation  of  the  Bank,  its  means  and  liabilities,  its 
circulation  and  deposits,  and  the  probable  future  demands  upon  it,  showing 
its  ample  resources  and  power  of  expansion;  whereupon"  the  Committee 
of  Exchange,  which  was  composed  of  three  directors,  appointed  by  the 
president,  were  authorized  by  the  Board  "to  make  loans  on  the  security  of 
the  stock  of  this  Bank,  or  other  approved  security,  and  if  necessary  at  a 
lower  rate  than  six,  but  not  less  than  five  per  cent,  per  annum."  "This  dele- 
gation of  power  to  the  Exchange  Committee  was  never  expressly  and 
formally  renewed  under  the  new  charter,  unless  it  be  considered  as  included 
15 


'1 

r 


.* 


'• 


U 


•f 


*^il 


ii^M 


\ 


I.    .  ,  1"  *» 


i;  '  i^i 


'rm 


ia6 


/f  HfsrdKY  Of'  fi/^NKINO. 


a 


liiulef  !i  n;onoiiil  losoliHioii  nl  the  new  hodiil  (ulfiptin>i  'tlu' Hy-l "ws.  Kules. 
iiiul  Ki'^iiliitions '  (ilttio  Iniinor  Mimk,  \\y  (ho  sliHcmiMil  of  thr  toiulition  (tf 
Ihf  Miiiik  (ipon  Iho  i>\  olMiinli.  i.Sis,  the  whole  dinoim)  of  lortiis  upon  Miiiik 
stock  i\\u\  odioi  ihiin  luMsonnl  socuilty,  Wiis  1(14. 71^7. gio.a'i,  while  by  that  of 
MiUih  1.  1S16.  these  lofiiis  hiul  liicieased  to  the  sum  of  J^d./J/JO.  1C17.HH. 
Uiulei  s\uh  liivdinsfrtikes,  the  .-utive  meiiiis  of  the  Hunk  were  iomp;Uiitivelv 
sni.ill  to  pay  the  iniineiliate  ilemiiiul  of  the  State  li»f  the  I'oiuis,  to  settle  with 
the  novemineiil  of  the  Uiiiteil  Stales  lor  its  slock,  anil  to  meet  Its  tlrtulation 
of  $jo.  ii4,^^7.'<0.  which,  connary  to  the  anticipation,  expressed  at  the 
period  ol  its  recharter.  soon  he^an  to  be  rapidly  piesenled  lor  redemption. 
The  Hank  was  of  necessity  driven  into  the  market  as  a  borrower,  and  very 
soon  the  first  step  was  taken  to  vtbtain  loans  abroad,  by  sending  the  cashier 
t.<  l-nrope  loi  that  purpose.  Two  loans  were  accordingly  ni>joliated  by 
him;  one  in  linnland  of  ,/,i  million  sterling;  and  another  in  I'rantc  of 
1  a,  vx).»HH)  francs,  on  favorable  terms," 

"To  this  lloreign  indebtedness)  has  been  superadded  extensive  dealing 
in  slocks,  and  a  conlinualion  of  the  policy  of  loaning  upon  slock  securities, 
though  it  was  evidently  proper  upon  the  rccharter  thai  such  a  policy  should 
be  at  once  and  entirely  abandoned.  Such  indeed  was  its  avowed  purpose, 
yet  one  year  afterwards,  in  March.  !Si7.  ils  loans  upon  stocks  and  other 
than  pel sonal  .security  had  increased  $7. Ha  1.S4 1,  while  the  bills  discounted 
on  personal  security  and  domestic  exchange  had  suffered  a  diminution  of 
$o.sK>,40r7S.  It  seems  to  have  been  sufficient  to  obtain  money  on  loan. 
I()  pledge  the  .slock  of  an  'Incorporated  Company. '  however  remote  ils 
operations  or  uncertain  its  pii^spects.  Many  large  loans,  originally  mailc  on 
a  pledge  of  stocks,  were  paid  lor  in  the  same  kind  of  property,  and  that  too 
at  par.  when  in  many  instances  they  had  become  depreciated  in  value.  It 
is  very  evident  to  the  (lommittee  that  several  of  the  ofVicers  of  the  Bank 
were  themselves  engaged  in  large  operations  in  stocks  and  speculations,  of 
a  similar  character,  with  funds  obtained  of  the  Hank,  and  at  the  same  lime 
loans  wore  made  to  the  companies  in  which  they  were  interested,  and  to 
others  engaged  in  the  .same  kind  of  operations,  in  amounts  greatly  dispro- 
portionate to  the  means  of  the  parties,  or  to  their  proper  and  legitimate 
wants  and  dealings." 

In  other  w  ords,  the  United  States  Bank  of  Pennsylvania  became  11  Credit 
Mobilier.  and  engaged  in  pr»>moling  all  sorts  of  enterprises  all  over  the 
Union,  and  making  financial  contracts  of  various  kinds. 

•'I'roni  March.  kS^s.  the  chief  control  and  management  of  the  affairs  of 
the  institution  appears  to  have  passed  iVom  the  hands  of  the  directors.  The 
mode  in  which  the  Committee  of  Hxchange  transacted  their  business  shows 
that  there  really  existed  no  check  whatever  upon  the  ofVicers,  and  that  the 
funds  of  the  Bank  were  almost  entirely  at  their  disposition.  Tiiat  com- 
mittee met  daily  and  were  attended  by  the  cashier  and  at  times  by  the 
president.  They  exercised  the  power  of  making  loans  and  .settlements  to 
full  as  great   an  extent  as   the    Board    itself.     They   kept  no  minutes  of 


mti  UNIIIU)  STATUS  HANK  Oh  PENNSYLl^AN/A. 


22^ 


Ocilit 


their  piiKoinlliii^s.  no  li(H»k  in  which  Ihc  loiins  nuitle  iind  fhc  hiisiiicss  <l(»ni' 
WciT  rillf'HHl.  Iiiit  Ihciidrrisifins  find  (liiTC  (ions  wi'fc  vi'fli.illv  uivcn  to  thr 
(•niiers,  ((I  be  by  them  ((nrietl  into  execntion.  The  rstiil'lislied  ( o(ir=;r  of 
business  seems  to  hiive  been  for  the  first  teller  to  pfiy  on  presentation  (it  the 
eonnter  nil  i  heiks.  notes,  or  due  bills.  liovinK  endorsed  the  order  or  the 
initiiils  tif  one  of  the  tiishiers,  imd  to  place  these  as  vouchers  in  his  drav/er 
for  so  much  cash,  where  (hey  remained  until  just  before  the  regular  periful- 
iial  coiiiiliiifi  of  the  (ash  by  (he  S(andinK  (;onnni((ee  of  the  Hoard  f»n  (he 
s(a(e  of  (he  Hank.  These  vouc  hers  were  (hen  (aken  out.  and  entered  as 
'Mills  Kereivable'  in  a  small  memorandum  book,  under  the  ciiarKe  f»f  one 
of  (he  clerks.  These  bills  were  not  discounted  but  bore  interest  piiyable 
semi-annually  mid  were  secured  by  a  pledge  of  .stock  or  some  other  kind  of 
pioper(v." 

In  November.  \^-\'^,  fifteen  of  the  branches  had  been  sold.  Until  this 
lime,  therefore,  it  appears  (ha(  (he  Hank  was  proceedinj/  dire(  tly  and  stead 
lly  with  (he  work  of  winding/  up  i(s  affairs.  In  Noveml'rr.  however,  projec  (s 
be^an  (o  be  (alked  about  for  f/ellin^a  ,S(a(e  charter  from  Petmsylvania.  (^ne 
of  the  cftnlrollin^  motives,  and  perhaps  the  most  powerhd  of  all,  in  this  and 
the  subsecpient  procerdinj/s.  was  the  jealousy  between  New  York  and  I'fiii- 
adelphia.  There  was  a  proposition  (o  cstal'lish  a  ^reat  fifty-million-dollar 
bank  at  New  Y»Mk,  and  it  seemed  that  if  Philadelphia  lost  her  bank  and  New 
York  got  one,  the  (inancial  hej/emony  would  be  permanently  transferred  to 
the  latter  ci(v.  (Jn  two  occasions  already  since  the  fate  of  the  f{ank  was 
sealeil  New  York  had  been  in  trouble,  and  had  turned  to  Middle  for  help,  hi 
December.  iHis,  alter  the  great  /ire  in  New  York,  the  Hank  opened  credits 
(or  two  luillion  dollars  in  favor  of  the  insurance  companies.*  In  May,  iH}6, 
in  tlie  midst  of  the  (itiancial  stringency!  New  York  called  on  the  Hank  of  the 
United  .States  for  aid,  which  it  gave.  In  the  newspaper  discussion  over  the 
(irst  proposition  that  I'ennsylvania  should  charter  the  Hank,  the  probable 
cITect  of  such  a  step  on  the  rivalry  of  the  two  cities  was  f)penly  debated. | 

The  whigs  had  a  majority  of  forty-four  in  the  House  of  Representatives 
of  I'ennsylvania.  in  January,  iMy»,  but  the  democrats  had  five  majority  in 
the  Senate.  The  proposi(ir)n  was  (irs(  broached  in  the  shape  of  a  letter  to 
Middle  from  two  members  of  the  Legislature,  asking  him  what  should  be  the 
main  features  of  a  charter  which  would  be  satisfactory  to  the  Hank.  Middle 
afterwards  referred  to  this  as  if  it  had  been  a  ImtaJiUe  offer  from  these  gen- 
tlemen, and  in  no  way  inspired  by  the  Mank.g 

The  act  (or  the  Pennsylvania  charter  was  passed  f-cbruary  i^,  1836.  it 
comprised  three  projects  in  an  obviously  log-rolling  combination;  remission 
of  (axes,  public  improvciiients,  and  bank  charter.  It  was  no  new  thing  in 
Pennsylvania  or  elsewhere  to  put  into  bank  charters  a  re(|uirement  that  the 
bank  .should  subscribe  to  some  public  improvement,  or  charitable  enterprise. 
Education  was  very  commonly  dragged  in  as  a  make-weight.     This  might 


*f 


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*  4f  Nlln,  )o7. 


I  t,«ttir  to  Adam>,  r  Kafjurt  t  Rrghter,  ^4. 


X  tf,  NilM.  \(n. 


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328 


/I  HISTORY  OF  BANKING. 


be  regarded  as  only  an  appropriation  of  a  bonus  which  was  exacted.  In  any 
case,  the  appropriation  of  it  to  some  purpose  which  some  people  had  very 
much  at  heart  was  intended  to  help  the  bill  through.  Remission  of  taxes 
was  the  most  effective  lever  of  this  kind.  The  Bank  was  chartered  for  thirty 
years.  It  was  to  pay  a  bonus  of  two  and  a  half  million  dollars;  pay  a  hun- 
dred thousand  dollars  per  year  for  twenty  years  for  schools;  loan  the  State 
not  over  a  million  dollars  a  year,  in  temporary  loans  at  four  per  cent.,  and 
six  million  dollars  on  State  bonds,  payable  in  1868  at  four  per  cent.,  and 
subscribe  six  hundred  and  forty  thousand  dollars  to  railroads  and  turnpikes. 
The  lowest  note  was  to  be  $10,  and  elaborate  rules  which  the  law  of  the 
State  already  contained  for  enabling  note-holders  to  enforce  a  remedy  for 
non-redemption  were  here  repeated.  Personal  taxes  were  repealed  by  other 
sections  of  the  bill,  and  $1,368,147  were  appropriated  out  of  the  Bank  bonus 
for  various  canals  and  turnpikes.  Evidently  all  the  hobbies  and  local  schemes 
in  the  State  clustered  around  this  big  carcass  and  fought  with  one  another 
for  slices  of  it.  The  charter  passed  the  Senate  19  to  \2,  and  the  House  57 
to  30.* 

A  loud  outcry  was  at  once  raised  that  this  bi'i  could  only  have  been 
passed  by  corruption,  because  of  the  democratic  majority  in  the  Senate.  A 
member  of  the  House  who  had  made  such  a  statement  was,  after  an  investi- 
gation, called  to  the  bar  of  the  House  and  reprimanded  for  "an  attempt  to 
mislead  public  sentiment  at  the  expense  of  the  character  and  reputation  of 
the  Legislature  of  the  Commonwealth. "f  At  the  next  session  the  Legislature 
ordered  an  investigation  of  the  method  by  which  the  United  States  Bank  had 
obtained  its  State  charter.  The  majority  of  the  committee  reported  denying 
that  the  letter  which  had  been  written  to  Biddle  was  intended  as  an  applica- 
tion to  him  on  behalf  of  the  State.  A  particular  question  had  arisen  already 
with  regard  to  the  continued  issue  of  the  notes  of  the  old  Bank.  This  the 
minority  of  the  committee  justified.  As  to  the  alleged  corruption,  nothing 
was  discovered. 

There  was  a  mysterious  item  of  $400,000  in  the  accounts  at  about  this 
date  which  is  often  referred  to.  The  only  approximate  explanation  is  in  the 
second  report  of  the  Committee  of  1841.  On  February  29,  1836,  there  were 
in  the  teller's  drawer  Biddle's  receipts  for  money  received  on  cashier's  checks 
to  the  amount  of  that  sum.  They  were  taken  out.  At  the  same  time  a  lot 
of  notes  of  the  old  Bank  were  burned,  including  ten  post-notes  of  $40,000 
each,  which  had  never  been  issued.  One  of  these  items  was  made  to  cover 
the  other.  The  clerk,  however,  later  discovered  that  the  account  of  notes 
showed  more  burned  than  issued.  June  27,  1840,  the  account  was  balanced 
by  charging  $400,000  to  the  contingent  fund  as  losses. 

It  was  common  tea-table  gossip  in  Philadelphia  that  the  State  charter 
was  obtained  by  bribery,  t 

Jackson's  chief  charge  against  the  Bank  at  last  was  that  it  spent  large 


*  49  Niles,  434. 


t  SoNUes,  III. 


X  Handy's  Testimony.  (184a.) 


THE  UNITED  STATES  BANK  OF  PENNSYLVANIA. 


22q 


this 

in  the 

were 

lecks 

a  lot 
0,000 
cover 
notes 
anced 

;harter 

t  large 

4») 


sums  to  influence  politics  and  legislation.  This  charge  the  Bank  seemed  to 
repel  successfully,  but  the  United  States  Bank  of  Pennsylvania  began  in 
political  corruption  and  legislative  abuse  and  never  desisted  from  them  while 
it  existed. 

Upon  the  passage  of  this  charter  the  stock  rose  to  126.  At  the  meeting 
of  the  stockholders  Biddle  said  that  the  Bank  had  a  surplus  with  which  it 
could  pay  all  the  sums  which  the  charter  imposed  upon  it.  The  charter 
was  accepted  two  days  after  it  was  passed,  with  great  enthusiasm,  and  a 
service  of  plate  was  presented  to  Biddle  for  his  services  in  getting  it.*  His 
salary  was  $8,000.  Bevan  was  made  president  of  the  old  Bank  for  the 
purpose  of  transferring  it  to  the  new,  and  on  the  2d  of  March,  all  the  assets 
of  the  old  Bank  were  turned  over  to  the  new  one  on  condition  that  the  latter 
should  assume  all  the  obligations  of  the  forner. 

April  II,  \8}6,  Congress  repealed  the  act  of  1817,  by  which  the  United 
States  Bank  was  charged  with  the  duties  of  commissioners  of  loans.  The 
Bank  was  ordered  to  hand  over  all  the  books,  papers,  and  money  within 
three  months.  April  20th,  its  duties  as  agent  for  the  payment  of  pensions 
were  ended.  June  23d,  the  Secretary  of  the  Treasury  was  charged  with  the 
property  rights  of  the  United  States  in  the  Bank,  and  was  directed  to  act  on 
its  behalf,  by  virtue  of  its  stock.  June  1 5th  the  fourteenth  section  of  the 
old  charter  was  repealed,  which  made  the  notes  receivable  at  the  Treasury. 
This  crippled  the  circulation  of  the  Bank  to  some  extent. 

In  October  there  was  a  report  that  the  Bank  would  surrender  its  State 
charter  if  it  could  get  back  its  bonus.  In  that  same  tionth,  however,  Biddle 
wrote  another  letter  to  Adams,  showing  the  wrong  which  would  be  done 
by  a  plan  which  was  on  foot  to  call  a  State  convention  for  the  purpose  of 
repealing  the  State  charter.  In  November  the  question  was  raised  in  the 
Legislature  whether  the  charter  could  not  be  repealed.  It  was  disposed  of 
by  a  general  resolution  affirming  the  inviolability  of  charters  except  by  the 
action  of  the  courts. 

June  23d  Congress  authorized  the  Secretary  of  the  Treasury  to  negotiate 
with  the  Bank  for  the  payment  of  the  government  stock.  No  agreement 
was  reached,  but,  February  25,  1837,  the  Bank  sent  a  memorial  to  the 
Speaker  of  the  House,  in  which  it  offered  to  pay  off  the  public  shares  at 
$115.58  per  share,  in  four  installments;  September,  1837,  1838,  1839,  1840. 
This  proposition  was  accepted  and  the  installments  were  all  paid.f  As 
the  Bank  sold  new  shares  in  England  at  £24  and  ^25,  it  gained  on  this 
operation.  The  Treasury  tried,  at  this  time,  to  induce  the  Bank  to  repay 
the  damages  which  it  had  retained  on  the  French  bill. 

In  his  message  of  1836,  Jackson  discharged  his  last  broadside  at  the  Bank. 
He  was  very  angry  that  it  should  have  taken  the  State  charter  and  prolonged 

*  49NUes,  441. 

t  The  commissioners  to  adjust  the  accounts  of  the  Bank  with  the  government  assumed  that  $600,000  of  its  circulation 
were  lost  and  would  never  be  presented  for  redemption.  It  was  the  estimate,  in  1841.  that  five-dollar  notes  would  he  one- 
fourth  of  the  circulation,  and  notes  under  five  dollars  another  fourth.  The  lost  notes  were  often  estimated  at  ten  per  cent,  of 
those  below  five  dollars.    (Treasury  Report,  February  12,  !84i.) 


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A  HISTORY  OF  BANKING. 


its  existence.  His  fears  and  tiie  hopes  of  the  Banic  centered  on  the  same 
point, — that  it  would  be  taken  up  again  as  a  national  bank.  The  most 
important  complaint  which  he  made  of  it  was  that  it  was  re-issuing  the 
notes  of  the  old  Bank. 

When  the  State  charter  was  taken,  there  were  3,417  stockholders,  of 
whom  there  were  Pennsylvanians  590;  other  citizens  of  the  United  States, 
2,267;  foreigners,  560.  The  distribution  of  the  capital  by  ownership  was,  in 
the  New  England  States,  $3.1  millions;  New  York  and  New  Jersey, 
$4.5  millions;  Delaware,  Maryland,  and  the  District  of  Columbia,  $2  millions; 
Virginia  and  North  Carolina,  $0.8  million;  South  Carolina  and  Georgia, 
$3  millions ;  other  States,  $99,000;  Pennsylvania,  $5.2  millions;  foreigners, 
$9.1  millions. 

The  loans  made  by  the  Exchange  Committee  to  the  officers  of  the  Bank 
and  to  the  favored  clique  connected  with  it  amounted,  March  4,  1836,  to 
$6.2  millions.  On  the  same  date,  one  year  later,  they  were  $8.1  millions. 
With  regard  to  these  loans  the  Committee  of  184 1  said:  "In  the  list  of  debt- 
tors  on  '  Bills  Receivable  '  of  the  ist  of  January,  1837,  twenty-one  individuals, 
firms,  and  companies  stand  charged,  each  with  an  amount  of  $100,000  and 
upwards.  One  firm  of  this  city  [Philadelphia]  received  accommodations  of 
this  kind  between  August,  1835,  and  November,  1837,  to  the  extent  of 
$4,213,878.30,  more  than  half  of  which  was  obtained  in  1837.  The  officers 
of  the  Bank  themselves  received  in  this  way  loans  to  a  large  amount.  In 
March,  1836,  when  the  Bank  went  into  operation  under  its  new  charter, 
Mr.  Samuel  Jaudon,  then  elected  its  principal  cashier,  was  indebted  to  it 
$100,500.  When  he  resigned  the  situation  of  cashier  and  was  appointed 
foreign  agent,  he  was  in  debt  $408,389.25,  and  on  the  1st  of  March,  1841, 
he  still  stood  charged  with  an  indebtedness  of  $1 17,500.  Mr.  John  Andrews, 
first  assistant  cashier,  was  indebted  to  the  Bank  in  March,  1836,  $104,000. 
By  subsequent  loans  and  advances  made  during  the  next  three  years,  he 
received  in  all  the  sum  of  $426,930.67.  Mr.  Joseph  Cowperthwaite,  then 
second  assistant  cashier,  was  in  debt  to  the  Bank,  in  March,  1836,  $1 15,000; 
when  he  was  appointed  cashier  in  September,  1837,  $326,382.50;  when  he 
resigned,  and  was  elected  a  director  by  the  Board,  in  June,  1840,  $72,960, 
and  he  stands  charged,  March  3,  1841,  on  the  books  with  the  sum  of 
$55,081.95.  It  appears  on  the  books  of  the  Bank  that  these  three  gentlemen 
were  engaged  in  making  investments  on  their  joint  account,  in  the  Stock 
and  Loan  of  the  Camden  &  Woodbury  Railroad  Co.,  Philadelphia,  Wilming- 
ton &  Baltimore  Railroad  Co.,  Dauphin  &  Lycoming  Coal  Lands,  and 
Grand  Gulf  Railroad  and  Banking  Company." 

Such  was  the  internal  condition  of  the  Bank  when  the  crisis  of  1837 
occurred. 


CHAPTER  XIII.— Continued. 


§  2. — The  Multiplication  of  Local  Banks. 


1837 


Taking  the  whole  country  over,  there  was  a  lull  in  the  activity  of  the 
bank-making  legislator  from  1825  to  1832. 

As  has  been  said,  the  local  banks  did  not  arouse  themselves  against  the 
great  Bank  at  Jackson's  first  attack.  They  were  not  dissatisfied  with  their 
relations  to  it.  The  best  of  them  stood  in  as  much  fear  as  anybody  in  the 
community  of  the  possibilities  of  a  bank  mania.  It  was  only  after  the  debt 
was  paid  and  the  surplus  revenue  began  to  accumulate  that  the  attraction  of 
this  bonanza  overcame  prudence  and  good  sense.  The  popular  sentiment 
now  swung  over  again  to  a  mania  for  banks.  Each  district  wanted  a 
deposit  bank  so  as  to  get  a  share  in  the  stream  of  wealth  which  was 
expected  to  flow  from  the  public  treasury.  If  a  deposit  could  not  be 
obtained,  then  a  bank  was  formed  in  order  to  participate  in  the  carnival 
of  credit  and  speculation;  for  a  non-deposit  bank  had  the  advantage  of 
being  bound  by  no  rule.  The  deposit  banks  drew  together  from  a  com- 
munity of  interest,  in  order  not  to  share  the  public  deposits  with  a  larger 
number.  For  two  years,  however,  the  amount  increased  faster  than  the 
banks  did. 

In  order  to  take  the  place  of  one  bank  with  $35  millions  capital,  which, 
after  all,  did  not  go  out  of  existence,  there  were  organized,  between  1832 
and  1837,  340  banks  with  $99  millions  capital.  The  mania  for  banking  was 
such  that  formal  riots  occurred  at  the  subscription  of  stock,  and  men  of 
pugilistic  ability  were  employed  to  enter  the  subscriptions.*  The  fortunate 
few  who  could  subscribe  the  whole  sold  to  the  rest  at  an  advance.  As  the 
commissioners  enjoyed  this  advantage,  it  was  worth  from  $500  to  $1,000  to 
be  a  commissioner,  t  The  prospect  that  a  bank  could  get  some  government 
money  given  to  it  intensified  the  notion  already  entertained  by  those  who 
were  desperately  in  debt,  that  the  best  way  to  escape  was  to  join  together 


m 


m 


*  41  Nites,  i;7 ;  44  Niles,  371. 


t  46  NUes,  188. 


■«  .^ 


'I'. 


Sill 


■    V 

j  i 


I 


2^2 


A  HISTORY  OF  BANKING. 


and  make  a  bank.  The  Tammany  society  being  in  debt,  a  plan  was  pro- 
posed for  paying  the  debt  by  making  a  bank.*  When  the  great  fire 
occurred  in  New  York,  in  1835,  a  proposition  was  made  to  create  a  bank  as 
a  mode  of  relieving  the  sufferers,  "To  make  a  bank,"  said  Niles,  "is  the 
great  panacea  for  every  ill  that  can  befall  the  people  of  the  United  States ; 
and  yet  it  adds  not  one  cent  to  the  capital  of  the  community."! 

The  effect  of  this  multiplication  of  banks  and  of  the  scramble  between 
them  for  the  public  deposits  was  that  an  enormous  amount  of  capital  was 
arbitrarily  distributed  over  the  country,  according  to  political  favoritism  and 
local  influence,  and  in  disregard  of  the  industrial  and  commercial  conditions. 
The  banks  which  received  this  public  money  were  expressly  encouraged  to 
loan  it  freely.  Secretary  Taney  wrote  to  the  deposit  banks  :  "The  deposits 
of  the  public  money  will  enable  you  to  afford  increased  facilities  to  the  com- 
mercial and  other  classes  of  the  community;  and  the  Department  [Treasury] 
anticipates  from  you  the  adoption  of  such  a  course  respecting  your  accom- 
modations as  will  prove  acceptable  to  the  people  and  safe  to  the  govern- 
ment." 

The  banks  used  these  deposits  as  a  "basis  for  circulation."  As  soon 
therefore  as  this  system  began  to  work  it  produced  a  grand  inflation,  reach- 
ing out  in  all  directions.  In  some  c.nses  the  banks  used  the  deposits  which 
were  given  to  them  to  put  themselves  in  the  position  which  they  were 
required  to  occupy  as  a  condition  precedent  to  acceptance  as  deposit  banks. 
The  preliminary  appearance  which  they  presented  was  fraudulent,  and  was 
healed  by  the  deposits  after  they  got  them. 

The  banks  of  VermontJ  were  established  by  separate  charters  until  1831, 
the  charters  having,  however,  certain  common  features.  The  limit  of  issue 
was  three  times  the  capital ;  six  per  cent,  of  the  profits  to  go  to  the  State  for  a 
school  fund.  A  peculiar  feature  was  a  provision  that  every  bank  director 
must  give  a  bond  for  $8,000  to  the  State,  to  perform  his  duties  faithfully  under 
the  charter.  Any  person  who  suffered  by  the  bank  might  sue  on  one  of  these 
bonds.  A  safety  fund  act  was  passed  in  1 83 1.  Each  bank  was  to  pay  three- 
quarters  of  one  per  cent,  per  annum  for  six  years,  thus  constituting  a  fund 
of  four  and  a-half  per  cent,  of  the  capital,  which  was  to  be  kept  good  by 
assessments  not  exceeding  three-quarters  of  one  per  cent,  per  annum.  This 
fund  was  liable  for  all  debts  of  a  failing  bank.  No  bank  was  to  begin  until 
fifty  per  cent,  of  its  capital  was  paid  in,  for  which  oath  should  be  taken  to 
the  Bank  Commissioners  appointed  in  the  act.  In  1840  this  act  was  amended 
and  extended,  so  that  the  whole  of  the  capital  stock  must  be  paid  in  within 
two  years,  or  the  bank  could  not  go  on.  The  directors  were  made  liable  for 
any  losses  sustained  by  individuals  through  a  violation  of  this  act,  and  each 

•  Mackeinzie,  70. 

+  49  Niles,  ag8. 

X  It  will  readily  be  understood  that,  in  presenting  the  history  of  the  several  States,  various  considerations  of  expediency, 
vtrhich  it  is  not  necessary  to  explain,  determine  the  point  of  time  at  which  the  history  is  taken  up  or  broken  off  in  each  case, 
and  also  the  order  in  which  the  States  are  put  in  the  series. 


it! 


I         \ 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


2}} 


of  them  must  execute  a  bond  to  the  State  Treasurer  such  that  the  aggregate 
for  each  bank  should  equal  its  capital,  with  sureties  residing  in  the  State  and 
not  directors,  or  with  mortgage  security  to  the  approval  of  the  Bank  Com- 
missioners. Every  cashier  must  also  give  bonds  to  the  State  in  $20,000. 
The  Bank  Commissioner  or  receiver  might  order  prosecution  on  these  bonds 
for  the  benefit  of  claimants  against  the  bank.  No  stockholder,  director,  or 
officer  might  owe  a  bank  over  five  per  cent,  of  its  capital,  and  all  of  them 
together  not  more  than  what  three  per  cent,  for  each  would  aggregate.  No 
loan  might  be  made  on  the  stock  of  the  bank;  debts  were  limited  to  twice 
the  capital  plus  the  deposits;  the  banks  were  offered  an  inducement  to  com- 
ply with  the  Suffolk  system  by  the  provision  that  there  should  be  one  per 
cent,  tax  on  capital,  which  should  be  remitted  on  any  bank  which  kept  a 
deposit  in  Boston  for  redemption.  Instead  of  paying  to  the  safety  fund,  a 
bank  might  give  bonds  with  sureties  or  security  to  redeem  its  notes.  In 
1844,  all  the  banks  under  this  law  redeemed  in  Boston,  and  paid  no  tax,  and 
three  gave  bond  instead  of  contributing  to  the  safety  fund. 

In  1839  the  Essex  Bank  failed.  Its  notes  were  presented  to  the  amount 
of  $_34,426,  of  which  $28,000  became  involved  in  litigation.  In  1844  the  fund 
was  $31,000;  that  is,  inadequate  to  meet  this  loss  if  the  entire  claim  was 
declared  valid.* 

Massachusetts. — "Between  the  years  1831  and  1833,  a  great  increase 
took  place  in  the  number  of  banks  in  New  England.  During  this  period  90 
new  banks  were  chartered,  of  which  45  were  located  in  Massachusetts.  The 
Suffolk  Bank  became  overloaded  with  redeemed  bills;  the  banks  were  slow 
in  making  remittances;  and  the  accounts  of  many  of  them  were  overdrawn. 
Accordingly  the  Suffolk  Bank  sent  a  circular  to  such  of  its  correspondents  as 
it  allowed  to  overdraw,  informing  them  that  on  account  of  the  scarcity  of 
money,  and  in  order  to  have  some  control  over  its  own  funds,  over-drafts 
must  be  limited  to  $10,000.  It  also  adopted  the  rule  that  foreign  money 
deposits  must  be  made  before  one  o'clock,  otherwise  they  would  .not  be 
credited  till  the  following  business  day.  At  the  same  time  it  reduced  the 
permanent  deposits  required  from  the  Boston  banks  to  $15,000  as  a  mini- 
mum." 

"In  1834  the  redemption  business  had  increased  five-fold;  from  $80,000 
to  $400,000  daily.  The  officers  were  employed  till  nearly  midnight,  and 
then  often  obliged  to  lay  aside  a  large  number  of  bills  to  be  counted  the 
next  morning.  To  reduce  the  business  and  keep  it  within  bounds,  it  became 
necessary  to  modify  the  arrangement  made  with  the  Boston  banks.  Hereto- 
fore they  had  been  allowed  to  send  in  all  their  foreign  money  at  par; — now 
they  could  send  in  on  any  one  day  an  amount  equal  to  one-half  of  their 
permanent  deposit.  If  they  exceeded  that  amount  they  were  charged  one- 
tenth  of  one  per  cent,  on  the  excess.  They  were  also  restricted  to  the  for- 
eign money  received   by  them   in  the  regular  course   of  their  business. 


"^ISA 


ll  I 


*  Treasury  Report,  August  lo,  1846. 


2)4 


A  HISTORY  OF  BANKING. 


r  ' 


excluding  deposits  from  banks  and  brokers.  By  these  means  it  was  hoped 
the  business  could  be  brought  within  reasonable  limits.  At  the  same  time 
the  permanent  deposit  of  the  Boston  banks  was  reduced  to  $10,000;  and  in 
May,  1835,  a  further  reduction  was  made  to  $5,000." 

"During  the  winter  of  1835-6  thirty-two  new  banks  were  chartered  in 
Massachusetts,  making  a  total  increase  of  78  new  banks  in  this  State  during 
a  period  of  six  years,  or  more  than  double  the  number  of  banks  in  operation 
in  1830.  And  nearly  the  same  ratio  of  increase  took  place  in  the  number  of 
banks  in  the  New  England  States.  In  1830  they  numbered  169;  in  1837, 
they  numbered  321.  Many  of  these  banks  were  started  with  little  or  no 
real  capital ;  specie  was  borrowed  for  one  day  to  be  counted  by  the  Bank 
Commissioner,  and  on  the  next  it  was  replaced  by  the  notes  of  the  stock- 
holders. The  bills  of  these  banks,  loaned  in  violation  of  the  usury  laws  at 
high  rates  of  interest,  were  used  in  the  wildest  speculations.  The  country 
was  flooded  with  them,  and  specie  was  becoming  scarce.  The  ratio  of 
specie  to  deposits  and  circulation  had  fallen  to  one  to  thirteen  and  a-half,  or 
less  than  seven  and  a-half  per  cent.,  the  smallest  then  ever  known.  These 
bills  poured  into  the  Suffolk  Bank  for  redemption;  and  in  April,  1836,  it  sent 
a  circular  letter  to  44  banks,  whose  accounts  were  overdrawn  in  the  aggregate 
sum  of  $664,000,  saying  that  it  would  send  their  bills  home."* 

In  March,  1836,  the  Massachusetts  Legislature  allowed  banks  to  issue 
post-notes  to  an  amount  not  exceeding  fifty  per  cent,  of  the  paid-up  capital, 
provided  they  issued  no  notes  less  than  $5.  This  was  repealed  February  i, 
1838.  The  tenor  of  the  post-notes  was:  the  bank  promises  to  pay  A.  B.  or 
bearer  $1,000  in  7  months,  with  interest  at  the  rate  of  four  and  one-half  per 
cent,  per  annum  until  due  and  no  interest  after.  This  privilege  was  princi- 
pally used  by  weak  banks.f 

This  was  p  operly  a  bond  because  it  bore  interest,  but  the  term  post- 
note  was  used  at  this  time  for  notes  which  bore  interest  or  did  not,  often 
producing  serious  confusion. 

In  1836,  a  memorial  was  addressed  to  the  Massachusetts  Legislature  for  a 
Bank  of  the  State,  to  have  $10  millions  capital,  and  the  Banks  of  the  State 
in  Louisiana  and  Alabama  were  pointed  to  as  models.  "The  wants  of  this 
community  require  the  establishment  of  a  bank  with  a  capital  sufficient  to 
do  the  business  which  has  heretofore  been  done  by  the  Branch  Bank  of  the 
United  States."  "It  is  proposed  to  establish  a  bank  of  $10  millions,  one- 
half  of  which  is  to  be  subscribed  by  the  State,  and  borrowed  in  Europe  on 
State  scrip,  bearing  interest  at  four  per  cent,  per  annum,  redeemable  in 
twenty  years;  and  the  other  half  to  be  subscribed  by  individuals. 

"This  scheme  is  based  on  the  supposition  that  money  can  be  borrowed 
in  Europe,  on  the  credit  of  Massachusetts,  at  four  per  cent,  per  annum,  and 
that  the  difference  between  the  interest  paid  by  the  State,  on  the  money 
borrowed,  and  the  dividend  received  from  the  bank  on  $5  millions  bank 


'  Whitney,  23. 


t  Martin ;  Boston  Stock  Market,  9. 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


V5 


stock  owned  by  the  State,  will,  if  reserved  as  a  sinking  fund,  redeem  the 
State  scrip  in  twenty  years,  and  leave  the  State  the  clear  amount  of 
$5,060,625.  "To  produce  this  result  it  is  assumed  that  the  bank  will  1  :ake 
semi-annual  dividends  of  three  per  cent.,  after  paying  into  the  treasury  one- 
seventh  part  of  its  profits,  according  to  the  experience  in  other  banks; 
assuming  also  that  the  proposed  sinking  fund  can  be  invested  at  five  per 
cent,  per  annum,  payable  semi-annually,  and  that  the  State  will  add  to  this 
sinking  fund  the  State  tax  on  its  own  portion  of  the  stock." 

The  memorialists  think  that  within  two  years  the  stock  of  the  bank 
would,  if  wisely  managed,  bring  as  high  price  in  the  New  York  market  and 
on  London  Exchange  as  the  average  value  of  the  stocks  of  the  large  banks  in 
the  middle  and  southwestern  States — a  premium  of  from  ten  per  cent,  to 
twenty-five  per  cent. 

In  1838,  the  Committee  on  Banks  was  ordered  to  inquire  into  the  expedi- 
ency of  this  scheme;  the  bank  to  have  branches  in  each  county;  the  State 
to  own  part  of  the  capital  and  to  control  the  direction.* 

The  banks  of  Rhode  Island  were  organized,  in  1836,  around  the  Mer- 
chants' Bank  of  Providence,  on  the  Suftblk  system,  the  Merchants'  itself 
being  a  satellite  of  the  Suffolk. f  The  number  of  banks  in  1838  was  sixty- 
four,  "being  nearly  one  for  every  fifteen  hundred  persons.  Almost  every 
village  has  one,  and  their  capitals  vary  from  $20,000  to  $500,000."! 

Connecticut. — The  charter  of  the  City  Bank  of  New  Haven,  May  28, 
183 1,  varied  considerably  from  the  Connecticut  type.  The  bank  was 
bound  to  subscribe  $100,000  to  the  Hampshire  and  Hamden  Canal,  and  was 
not  to  be  obliged  to  take  in  the  State  of  Connecticut  or  any  society  as  a 
stockholder;  it  was  to  be  free  from  taxation  until  the  canal  should  pay  six 
per  cent,  on  its  capital.  Being  subject  to  charges  and  investigation,  in 
1837,  the  bank  replied  that  it  had  been  forced  to  invest  its  funds  out  of  the 
State  because  the  additional  banking  capital  was  not  needed;  that  the  canal 
men  got  up  the  bank  in  order  to  get  the  capital;  that  the  canal  had 
been  sold  out  and  the  subscription  of  the  bank  lost.  It  claimed  to  be  almost 
the  only  bank  north  of  the  Potomac  paying  its  promises  in  "constitutional 
currency."  The  chartered  banks  of  the  State  resented  the  appointment  of 
Bank  Commissioners,  in  1837,  and  refused  to  pay  their  share  of  the  expenses 
of  the  commission,  as  provided  by  law.  The  Legislature  did  not  try  to 
force  them,  but  paid  their  quota  from  the  State  Treasury. 

New  York. — An  amendment  to  the  safety  fund  law  was  adopted  May 
11,  1835,  which  was  chiefly  aimed  against  usurious  devices.  The  Bank 
Commissioners  were  to  examine  the  officers  on  oath  on  these  points,  and 
obtain  an  injunction  against  any  bank  violating  this  law.  In  April,  1836, 
there  were  in  the  city  seventeen  safety  fund  banks  and  six  others;  in  the 
country,  sixty  safety  fund  banks  and  four  others.  January  ist,  the  safety 
fund  was  estimated  at  $54o,285.§ 


•  I  Raguet's  RegUur,  aSi. 


t  Treasury  Report,  January  4,  1837. 
S  50  NUes,  136. 


X  2  Raguet's  Register,  348. 


11 


'I 


$ 


!?6 


/I  HISTORY  OF  BANKING. 


{       I 


The  circulation  of  the  safety  fund  banks  was  limited,  May  i6,  1837,  by 
an  elaborate  scale;  a  bank  of  $100,000  capital  being  allowed  $i'50,ooo  circu- 
lation; one  of  $120, 000  capital,  $160,000  circulation,  and  so  on,  the  propor- 
tion of  circulation  to  capital  diminishing  with  the  increase  of  the  latter, 
until,  at  $200,000  the  two  were  equal.  Then  the  circulation  was  made  less 
than  the  capital,  until  a  $1  million  bank  was  allowed  only  $800,000,  and 
one  of  $2  millions  only  $1.2  millions  circulation.  The  Comptroller  was 
authorized  to  apply  a  portion  of  the  safety  fund  to  the  redemption  of  the 
notes  immediately  after  a  failure,  so  as  to  prevent  them  from  depreciating; 
but  a  Bank  Commissioner  must  make  a  certificate  before  this  could  be  done 
"that  the  amount  of  the  debts  of  such  banking  corporation  over  and  above 
its  property  and  effects,  will  not  exceed  two-thirds  of  the  amount  of  the 
bank  fund  then  paid  in  and  invested,  exclusive  of  all  prior  established 
claims  thereon." 

The  safety  fund  law  originally  provided  that  the  Governor  and  Senate 
should  appoint  one  Commissioner,  the  banks  in  the  city  and  southern  part 
of  the  State  a  second,  and  the  other  banks  the  third.  This  was  changed  in 
1837  to  give  the  appointment  of  all  three  to  the  Governor  and  Senate. 
"This  of  course  brought  them  within  the  vortex  of  the  great  political  whirl- 
pool of  the  State,  and  the  place  was  sought  for  and  conferred  upon  partisan 
aspirants  without  due  regard  in  all  cases  to  their  qualifications  to  discharge 
the  delicate  trust  committed  to  them."* 

So  much  of  the  law  of  1818  as  forbade  any  person  or  association  of  per- 
sons to  keep  offices  for  the  purpose  of  receiving  deposits  or  discounting 
notes  or  bills  was  repealed  by  a  law  passed  February  4,  1837,  but  any  cor- 
poration, created  by  the  laws  of  any  other  State  or  country,  was  still  forbid- 
den to  keep  any  office  for  the  purpose  of  receiving  deposits,  discounting 
notes  or  bills,  or  issuing  bank  notes.  This  shut  out  any  branch  of  the 
United  States  Bank  of  Pennsylvania. 

Pennsylvania. — The  most  perfect  specimen  we  have  of  a  deposit  bank, 
showing  the  demoralization  and  mischief  produced  by  that  system,  is  the 
Girard  Bank.  It  was  founded  in  1832;  in  1834  it  got  a  share  of  the  public 
deposits.  To  make  this  share  larger  an  act  of  Assembly  was  procured  in  1836, 
increasing  the  capital  from  one  and  a-half  million  to  five  millions  and  extend- 
ing the  charter  twenty  years.  The  stockholders  gave  the  cashier  two  hundred 
shares  of  the  stock  for  his  agency  in  procuring  the  passage  of  the  act.  The 
increase  of  capital  was  paid  by  stock  notes  and  the  bank  was  largely 
occupied  in  stock-jobbing  to  carry  out  this  operation.  "The  maximum  of 
government  deposits  having  been  obtained,  a  system  of  prodigality  in  loan- 
ing them  out  was  commenced,  which  baffles  the  conception  of  sober  and 
reflecting  minds,  and  of  which  we  have  but  few  examples,  even  in  the  annals 
of  modern  banking."  In  fact,  the  paid-up  capital  was  never  over  two-thirds 
of  five  millions,  but  the  government  deposits  ran  at  times  as  high  as  four 

*  Comptroller  Fillmore,  1848. 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


231 


and 
uils 
irds 
bur 


millions.  The  assets  consisted  very  largely  of  unavailable  loans,  so  that  with 
a  discount  line  of  six  or  seven  millions,  scarcely  two  hundred  thousand 
dollars  was  in  active  business  paper.* 

In  1836  Dr.  Dyott  of  Philadelphia  established  what  he  called  a  Manual 
Labor  Bank.  "His  motive  for  this  is  to  give  to  the  meritorious  working- 
man  the  full  legal  interest  which  he  ought  always  to  obtain  for  his  savings." 
The  doctor  filed  a  mortgage  for  $soo,ooo  on  his  own  real  estate,  as  security 
for  his  notes,  which  were  for  five  cents  and  above.  He  also  issued  post- 
notes  for  sums  from  $1  to  $20.  He  owned  glass-works  and  houses,  and 
had  a  store  containing  various  commodities.  He  seems  to  have  been  another 
case  of  a  man  who  committed  crime  under  the  influence  of  a  mixed  philan- 
thropic and  financial  delusion.!  He  was  70  years  old  and  was  sent  to  the 
penitentiary  for  three  years,  but  was  pardoned  by  the  Governor.  J 

Virginia. — The  charter  of  the  Bank  of  Virginia,  having  been  extended 
January  24,  1814,  until  1833,  was  further  extended,  February  17,  1830,  for 
nine  years  and  one  month.  As  will  be  seen  in  the  other  renewals  which 
follow,  the  plan  was  adopted  of  making  all  the  charters  expire  June  1,  1842; 
that  then  all  the  banks  might  be  put  under  a  general  law.  A  bonus  of 
$51,306  was  demanded  for  the  State,  to  be  obtained  by  reserving  from  the 
dividends  of  the  private  stockholders  30  cents  per  share.  The  State  deposits 
were  to  be  put  in  this  bank.  Its  notes  were  to  be  receivable  by  the  State 
while  it  paid  specie;  but  this  provision  might  be  revoked.  The  charter  of 
the  Bank  of  the  Valley  was  exter  '^d,  February  18,  1830,  for  eight  years  and 
one  month,  to  bring  it  to  June  i,  1842;  bonus,  $10,000,  which  was  not  to  be 
taken  from  the  State  stock.  March  4,  1831,  the  charter  of  the  Northwestern 
Bank  was  extended  to  the  same  date,  with  an  increase  of  capital  of  $300,000; 
bonus,  $5,000.  . 

At  this  time  the  State  ot  Virginia  was  out  of  debt  and  its  finances  in  good 
order.  In  1833,  a  reduction  of  taxation  was  proposed,  but,  instead,  the  State 
took  up  the  policy  of  internal  improvements.  In  1832  the  James  River  and 
Kenawha  Company  was  incorporated;  also  several  railroad  companies. 
"The  State  took  stock  in  most  of  these  companies,  and  appropriations  were 
made  in  aid  of  the  Chesapeake  and  Ohio  Canal,  besides  many  other  minor 
works.  In  the  course  of  a  few  years  large  sums  of  money  had  to  be  raised 
by  the  State."  One  party  insisted  that  the  improvements,  as  they  were  made, 
would  provide  the  interest  and  when  finished  would  pay  that  and  sink  the 
principal  too;  another  party  insisted  that  taxes  should  be  laid  for  the  interest, 
lest  the  State  credit  should  suffer.  Within  ten  years  a  debt  of  $7,650,000 
was  contracted,  of  which  the  banks  had  taken  $770,000;  $1.4  millions 
belonging  to  the  State  and  State  institutions  had  also  been  absorbed; 
$2.3  millions  were  held  abroad.  The  works  in  which  the  State  held  stock 
produced  scarcely  any  revenue.  §    The  effects  of  this  policy  appear  immedi- 

•  Report  of  the  Stockholders'  Investigating  Committee,  1841. 
t  a  Raguet's  Register,  148,  352 ;  2  Watts  &  Sarge.int,  461 ;  16  Niles,  36.  X  Gouge ;  Journal  of  Banking,  7. 

^  (Governor's  Message.  1843. 


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A  HISTOR  Y  OF  BANKING. 


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ately  in  the  history  of  the  banks.  February  i6,  1833,  the  Bank  of  Virginia 
and  the  Farmers'  Bank  were  authorized  to  subscribe  to  the  James  River  and 
Kenawha  Company  not  more  than  ^,000  shares.  March  4th,  they  were 
allowed  to  increase  their  capital,  in  order  to  pay  for  these  subscriptions. 

The  Merchants  and  Mechanics'  Bank  of  Wheeling  was  incorporated 
March  7,  1834;  capital  $^00,000;  to  last  until  1854;  bonus  $25,000;  12  per 
cent,  penalty  for  suspension ;  debts,  exclusive  of  deposits,  limited  to  twice 
the  capital.  In  an  explanatory  act,  February  17,  iSjs.  the  intention  was 
declared  to  allow  no  notes  under  $5  after  June  i,  1842;  and  the  right  was 
reserved  in  this  charter  to  legislate  further  as  to  the  lowest  denomination  of 
notes. 

An  act  for  the  general  regulation  of  banks  was  passed  March  22,  1837. 
Banking  powers  were  defined ;  three-fifths  of  the  capital  was  to  be  paid  in  in 
coin  before  beginning;  the  lowest  denomination  of  notes,  until  July  i,  1840, 
was  to  be  $10;  after  that  $20;  the  circulation  was  never  to  exceed  five  times 
the  coin  reserve;  15  per  cent,  penalty  for  failure  to  redeem;  a  bonus  of  a 
quarter  of  one  percent,  on  the  capital  was  to  be  paid  by  creating  extra  stock, 
which  should  be  a  fund  for  internal  improvements.  The  act  was  long  and 
full  of  detail,  embracing  the  general  features  of  the  Virginia  charters  with 
some  comprehensive  improvements.  It  stands  in  the  history  as  a  record  of 
the  pious  intentions  of  the  Legislature  at  the  moment  that  the  storm  burst 
upon  them.  They  proceeded,  however,  at  once  to  other  legislation  likely 
to  have  a  very  different  effect.  The  Exchange  Bank  of  Norfolk,  with  three 
branches,  $1.8  millions  capital,  half  by  the  State,  to  last  until  1852,  was 
chartered  March  25th.  Additions,  aggregating  $3.2  millions,  to  the  capital 
of  the  existing  banks  were  proposed,  half  by  the  State,  and  the  charters  were 
extended  until  1837,  if  the  banks  would  come  under  this  law  and  the  gen- 
eral law;  the  limit  of  notes  to  $10  was  postponed  until  October  ist.  The 
State  proposed  to  pay  its  subscriptions  with  its  share  in  the  distribution  of 
the  federal  surplus,  the  remainder  of  which  was  to  be  loaned  to  the  Bank  of 
Virginia  and  the  Farmers'  Bank  at  5  per  cent. 

North  Carolina. — "  An  act  to  establish  a  bank  in  the  State  of  North  Car- 
olina "  was  passed  at  the  session  1833-4;  capital  $1.5  millions;  until  i860; 
the  State  to  have  an  option  on  two-fifths  of  the  capital,  and  to  pay  its  sub- 
scription, if  it  decides  to  use  its  privilege,  as  the  other  subscribers  do,  in 
specie  or  its  equivalent;  the  option  to  be  open  until  1837;  to  have  four  out  of 
ten  directors  if  it  takes  all  the  shares  reserved  to  it ;  the  State  Treasurer  to  be 
^x-o^«'o  a  director;  tax  25  cents  per  share;  \2  per  cent,  penalty  for  non 
redemption;  lowest  note  $5;  limit  of  circulation  twice  the  capital.     A  si' 
plementary  act  provided  that  the  Treasurer  might  borrow  of  the  Bar 
Cape  Fear  and  the  bank  at  Newbern,  if  it  should  seem  expedient,  appart 
implying  that  he  might  borrow  to  pay  this  subscription.    In  an  account  of 
the  organization  of  this  Bank  of  the  State,  it  is  stated  that  the  commissioners 
at  first  found  it  difficult  to  decide  what  was  "equivalent  to  specie."    Their 
decision  was  unanimous,  but  the  document  does  not  tell  what  it  was.    It  is 


THE  MUL  TIPLICA  TION  OF  LOCAL  BANKS. 


^39 


only  stated  that  the  subscriptions  have  all  since  been  "  rendered  available  as 
specie."  The  subscriptions  went  on  slowly.  State  deposits  were  still  made 
in  the  old  Bank  of  the  State.  The  Treasurer  wanted  them  put  in  the  new 
one.*  The  Cape  Fear  bank  was  rechartered  at  the  session  of  1 851-4,  until 
1855;  capital  $800,000;  to  have  branches  as  might  appear  expedient;  to  lend 
the  State  not  over  one-tenth  of  its  capital;  twelve  per  cent,  penalty  for  non- 
redemption  ;  lowest  note  $3.  Under  the  act  of  1829  for  winding  up  the  bank, 
part  of  its  capital  stock  had  been  bought  in.  New  shares  were  now  to  be 
subscribed  to  restore  it;  to  be  paid  in  specie  or  its  equivalent.  At  the  same 
time  the  Merchants'  Bank  of  Newbern  and  the  Albemarle  Bank  of  Edenton 
were  incorporated.  The  only  peculiar  feature  was  that  no  director  might 
owe  to  the  bank  more  than  the  stock  he  owned.  The  charter  of  the  Mer- 
chants' Bank  of  Newbern  was  re-enacted  at  the  following  session,  with  some 
slight  changes;  the  lowest  note  was  to  be  $s.  In  183s,  the  State  Treasurer 
was  ordered  to  issue  $400,000  in  five  per  cent,  certificates,  payable  in  i860, 
and  to  pay  the  proceeds  on  the  State  subscription  of  stock  in  the  Bank  of  the 
State. .  The  bank  stock  was  pledged  for  these  bonds. 

The  Southwestern  Railroad  Bank,  being  the  banking  side  of  the  Louis- 
ville, Cincinnati,  and  Charleston  Railroad,  was  chartered  by  North  Carolina, 
January  20,  1837.  Three  of  the  States,  North  Carolina,  South  Carolina, 
Tennessee,  and  Kentucky  must  concur  before  this  act  would  be  valid. 
Every  one  who  subscribed  one  share  of  the  railroad  stock  at  $100  might 
subscribe  also  one  share  of  the  bank  stock  at  $50,  until  the  former  should  be 
$12  millions  and  the  latter  $6  millions.  The  mother  bank  was  to  be  in 
Charleston;  the  lowest  note  $5,  until  the  railroad  should  be  built,  and  after 
that,  $10;  twelve  per  cent,  penalty  for  non-redemption;  each  share  of  stock 
in  the  railroad  to  be  inseparably  connected  with  one  share  of  stock  in  the 
bank,  and  they  were  to  be  transferred  together;  the  bank  to  pay  no  tax  until 
the  railroad  was  completed. 

The  charter  of  the  Cape  Fear  Bank  was  extended  January  23,  1837,  until 
i860;  the  capital  might  be  increased  to  $1.5  millions,  the  State  taking 
$300,000  and  the  public  $400,000  of  the  increase,  if  this  capital  should  prove 
too  big,  the  bank  might  get  permission  from  the  Legislature  to  buy  in  shares. 

South  Carolina. — The  charters  of  the  Planters  and  Mechanics'  Bank  and 
the  Union  Bank  were  extended,  December  18,  1830,  for  twenty-one  years; 
each  to  pay  a  bonus  of  $25,000.  The  Bank  of  Columbia  was  chartered 
December  17,  1831,  until  1853;  capital  $500,000,  increasable  to  $800,000. 
On  the  same  day  it  was  enacted  that  all  the  officers  and  directors  of  the  Bank 
of  the  State  of  South  Carolina  should  take  an  oath  not  to  reveal  the  secrets 
of  the  bank.  It  was  prescribed  what  records  should  be  kept.  The  officers 
were  not  allowed  to  buy  any  State  stock;  the  stock  of  the  State  Bank  owned 
by  the  State  was  to  be  sold  and  other  safe  stock  bought.  The  charter  of 
the  Bank  of  South  Carolina  was  extended  for  twenty-one  years,  December 


*  Session  I^ws  of  1834-5.     Appendix. 


|i 


'      U  I 


I 


240 


A  HISTORY  OF  BANKING. 


'  I 


t  i 


20,  1832;  bonus  $16,875;  the  capital  might  be  increased  to  $1  million  by 
paying  a  proportionate  bonus.  The  charter  of  the  State  Bank  was  renewed 
December  19,  1833,  for  twenty-one  years;  bonus  $20,000,  provided  the 
stockholders  make  up  the  deficiency  in  the  capital.  On  the  same  day,  the 
charter  of  the  Bank  of  the  State  of  South  Carolina  was  extended  until  1856. 
It  was  to  call  in  all  notes  under  $1  and  issue  no  more.  On  the  same  day 
the  Bank  of  Chtraw  was  incorporated.  Det^.nber  17,  1834,  the  Bank  of 
Charleston  was  established;  until  1856;  capital  $2  millions;  bonus  two  and 
a-half  per  cent,  of  the  paid-up  capital.  The  Camden  Bank  followed, 
December  19,  1835,  and  the  Bank  of  Hamburg  the  same  day.  The  State 
Bank  was  allowed  to  increase  its  capital  to  $1  million,  December  21,  1836, 
and  the  Southwestern  Railroad  Bank  was  incorporated  the  same  day;  also 
the  Bank  of  Georgetown. 

It  is  very  doubtful  whether  the  notes  of  the  Bank  of  the  State  of  South 
Carolina,  under  $1,  were  actually  retired;*  but  that  bank  war  required,  by 
an  act  of  December  20,  1837,  to  'ssue  n-^tes  for  50  cents  and  25  cents. 

The  subscription  of  the  State  of  South  Carolina  to  10,000  shares  of  the 
Southwestern  Railroad  Bank  was  enacted  December  19,  1838,  and  that  bank 
was  authorized  to  set  up  agencies  in  South  Carolina.  It  was  n^ported  in  the 
previous  October  that  General  Hamilton  had  secured  a  load  in  Europe, 
which  he  was  bringing  home  in  specie  to  start  that  bank.f 

In  1838  a  debt  was  contracted  by  the  State  to  rebuild  the  city  of 
Charleston.  The  bonds  were  called  "fire  loan"  bonds.  These  bonds  were 
negotiated  by  the  Bank  of  the  State  and  the  money  realized  fr  m  them  was 
to  be  deposited  in  the  bank  and  become  a  part  of  the  capital  of  it,  which 
should  be  loaned  to  persons  who  intended  to  rebuild.  All  the  profits  of  this 
additional  capital  were  to  be  set  apart  to  pay  the  interest  and  principal  of 
these  bonds,  which  would  fall  due,  half  in  twenty  and  half  in  thirty  years. 
A  special  account  was  to  have  been  kept  with  this  fund,  and  the  profits  of 
the  same,  with  the  general  profits  of  the  bank,  were  to  be  applied  to  extin- 
guish it.  The  separate  account  was  not  kept  and  the  bonds  were  not 
retired. 

Georgia. — In  the  years  1830  and  1831,  the  multiplication  of  banks  com- 
menced in  this  State  also  and  the  charter  of  the  Bank  of  the  State  was 
extended  until  1855.  A  committee  of  the  House  recommended,  December 
16,  1830,  that  the  Darien  Bank  should  be  wound  up,  proposing  either  that 
the  State  should  buy  out  the  other  stockholders  or  that  it  should  refuse  to 
extend  the  charter.  The  capital  should  be  put  into  the  Central  Bank;  the 
return  would  equal  half  the  State  tax,  and  would  relieve  the  people  of  the 
burden  of  supporting  the  State  government.  Another  gain  would  be,  they 
said,  that  the  Legislature  would  then  no  longer  relieve  debtors  to  the  bank, 
because  if  they  did,  it  would  become  necessary  to  lay  taxes.  A  few  days 
later  a  special  report  on  the  Darien  Bank  was  made,  which  was  very  lauda- 


*  Treasury  Report,  January  4,  1837  ,  ditto  August  10,  1846. 


t  ^  Raguet's  Register,  171 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


241 


jxtin- 
not 

com- 

was 
:mber 

that 
use  to 
the 
of  the 

they 
bank, 

days 
auda- 


tory.  Once  it  had  a  circulation  of  $1.8  millions;  now  it  has  only  $200,000 
out  and  is  entitled  to  as  much  confidence  as  any  bank  in  the  State.  A  year 
later  a  legislative  committee  stated  that  the  Central  Bank  had  a  cir.:ulation 
of  $111,996;  specie  $80,656;  United  States  Bank  notes  $50,805;  notes  of 
State  banks  $108,653. 

All  notes  under  $5  were  forbidden,  December  24,  1832,  and  on  the  same 
day  the  charter  of  the  Bank  of  Macon  was  repealed  because  it  was  not 
redeeming  its  notes  in  specie.  They  had  ceased  to  be  current  and  were 
depreciated.  Also  ten  per  cent,  damages  and  interest  for  a  failure  to  redeem 
notes  in  specie  were  imposed  on  behalf  of  individuals;  the  law  did  not 
apply  to  banks  which  demanded  specie.  Also  semi-annual  reports  were 
demanded  from  all  banks,  in  order  to  keep  them  sound  and  to  secure  the 
noteholders.  The  notes  of  delinquent  banks  were  not  to  be  received  by  the 
State.  At  the  same  time  the  Central  Bank  was  ordered  to  put  to  the  credit  of 
the  treasury  funds  to  meet  the  outstanding  treasury  warrants,  not  in  excess 
c*  t' 80,000,  charging  the  same  to  the  capital  stock  of  the  bank.  At  this 
time  a  committee  very  pertinently  raised  the  question  whether  the  State 
intended  to  draw  from  the  funds  of  the  bank  the  means  to  pay  the  most 
ordinary  expenses  of  government,  and  so  to  destroy  its  usefulness.  A  long 
report  was  also  made  on  the  Macon  Bank,  which  had  failed  July  28,  1832, 
havmg  a  large  outstanding  circulation.  The  committee  estimated  it  at 
$453. 130,  which  was  $127,231  in  excess  of  the  amount  stated  by  the  bank  in 
its  return.  Schemers  had  bought  up  the  whole  capital  of  the  bank  at  a  pre- 
mium with  its  funds.  At  last  the  sole  owner  died  insolvent.  False  returns 
had  been  repeatedly  made. 

The  charter  of  the  Darien  Bank  was  extended,  December  19,  1834,  until 
1855. 

The  act  against  small  notes  was  declared,  December  22,  1835,  to  have 
been  beneficial.  For  the  future  only  five's,  ten's,  twenty's,  etc.,  were  to  be 
allowed.  At  that  time  the  Bank  of  Milledgeville  was  incorporated  and  in 
December,  1836,  five  more.  It  was  enacted,  December  22,  1836,  that  debts 
to  the  Central  Bank  might  be  renewed  once  in  twelve  months  instead  of 
once  in  six  months,  and  the  trustees  of  Oglethorpe  University  were  allowed 
by  law  to  subscribe  the  funds  of  the  University  into  the  capital  stock  of  the 
Bank  of  Milledgeville  at  par,  because  all  other  bank  stock  was  at  a  premium. 
At  this  time  the  Central  Bank  had  loans  outstanding  $1,103,111,  of  which 
there  was  in  suit  $46,924;  unpaid  $211,058;  bills  under  protest  $72,400. 
A  report  on  the  Bank  of  the  State  showed  the  capital,  $1.5  millions;  cir- 
culation, $151,742;  surplus,  $110,100. 

Alabama. — Inasmuch  as  the  Constitution  of  Alabama  provided  that  there 
should  be  only  one  Bank  of  the  State,  it  was  necessary,  when  other  banks 
with  capital  obtained  on  the  State  credit  were  thought  to  be  required,  that 
they  should  be  organized  as  branches  of  the  Bank  of  the  State.  The  conse- 
quence was  that  the  Bank  of  the  State  of  Alabama  came  to  consist  of 
branches  almost  entirely  independent  of  the  first  one,  which  was  considered 
16 


i 


it 


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If 


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!!,li 


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will 


:    Vij' 


;/; 


'h 


242 


/I  HISTORY  OF  BANKING. 


the  parent  bank,  at  Tuscaloosa.  The  first  such  branch  was  established 
January  21,  1832,  at  a  place  to  be  set  by  the  Legislature.  It  became  the 
branch  at  Montgomery.  The  capital  was  to  be  $300,000,  provided  it  could 
be  obtained  on  a  five  per  cent,  loan  at  par.  It  was  not  to  come  from  the 
existing  Bank  of  the  State.  The  Legislature  were  to  elect  the  president  and 
directors;  it  was  to  last  until  1845;  lowest  denomination  of  notes  $1;  to 
report  to  the  Bank  of  the  State  at  Tuscaloosa  and  be  subject  to  examination 
by  it;  debts  exclusive  of  deposits  not  to  exceed  twice  the  capital;  the  faith 
of  the  State  was  pledged  for  the  redemption  of  the  notes  and  payment  of  its 
debts.  November  17th,  another  branch  was  established  at  Decatur,  for 
which  five  per  cent,  thirty-year  State  stock  to  the  amount  of  $1  million  was 
to  be  issued.*  The  provision  in  the  charter  of  the  Bank  of  the  State  that  its 
loans  should  be  allotted  to  the  counties  by  population  was  repealed  January 
12,  1833,  and  the  Governor  was  to  appoint  three  Commissioners  to  examine 
the  Bank  of  the  State  at  any  time  when  they  should  see  ^t. 

The  Bank  of  Mobile  was  authorized,  January  16,  1834,  to  increase  its 
capital  to  $1.5  millions,  two-fifths  of  which  was  to  be  reserved  for  the  State; 
extended  to  1859;  bonus  $100,000,  to  be  paid  in  annual  installments  in  lieu 
of  taxes  during  the  charter  period.  January  i8th,  the  Bank  of  the  State  and 
its  branches  were  allowed  to  issue  post-notes  payable  to  specified  persons, 
running  not  over  ninety  days,  and  bearing  no  interest  until  after  payment 
was  demanded.  This  was  extended  January  2,  1835,  by  allowing  them  to 
issue  post-notes  for  one-half  their  paper  issue,  one-half  of  which  should  be 
payable  at  Boston,  New  York,  and  Philadelphia,  with  the  same  restrictions 
as  before.  Another  branch  of  the  Bank  of  the  State  was  established  at 
Huntsville,  January  10,  1835.  Five  per  cent,  thirty-year  bonds  were  to  be 
sold  to  the  amount  of  $1  million,  half  for  the  capital  of  this  bank,  and  half  to 
increase  that  of  the  branch  at  Decatur.  The  lowest  denomination  of  notes 
for  this  branch  was  set  at  $5.  On  the  same  day  the  capital  of  the  Bank  of 
Mobile  was  increased  to  $1,850,000,  and  State  bonds  were  to  be  sold  to 
take  up  the  two-fifths  reserved  for  the  State. 

The  Planters  and  Merchants'  Bank  of  Mobile  was  chartered  January  8, 
1836,  for  twenty  years;  capital  $5  millions;  lowest  denomination  of  notes  $5; 
limit  of  issue,  twice  the  capital;  two-fifths  of  the  capital  reserved  for  the 
State;  annual  bonus,  $7,500,  in  lieu  of  taxes.  January  9th,  all  taxes  were 
abolished  except  those  on  shows,  games,  etc.  The  sum  of  $100,000  was 
set  aside  from  the  revenue  coming  from  the  stock  owned  by  the  State  in  the 
Bank  of  the  State  to  pay  the  State  expenses.  This  sum  was  to  be  put  to  the 
credit  of  the  State  by  the  bank  and  branches,  in  the  parent  bank,  November 
1st  of  each  year.  On  the;;same  day  the  capital  of  the  Huntsville  branch  was 
increased  $soo,ooo;  that  of  the  Bank  of  the  State,  $400,000;  that  of  the 
Montgomery  branch,  $500,000;  that  of  the  Mobile  branch,  $1  million;  and 

*  The  make-up  of  the  volume  of  session  laws  seems  to  be  defective,  and  the  law  establishing  the  branch  at  Mobile  is 
wanting.     It  is  afterwards  referred  to  as  having  been  established  December  4,  183a. 


iryS, 

ir  the 

Iwere 
was 
In  the 
to  the 
Imber 
was 
\i  the 
;  and 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


343 


five  per  cent,  thirty-year  bonds  were  to  be  sold  to  raise  the  whole.  At  the 
next  session,  December  23d,  the  Governor  was  directed  to  appoint  three 
Commissioners  annually  to  examine  the  Bank  of  the  State  at  Tuscaloosa  as 
other  commissioners  already  examined  the  branches.  The  president  of  the 
Bank  of  the  State  was  to  receive  the  dividends  on  the  stock  owned  by  the 
State  in  the  Bank  of  Mobile,  and  pay  the  semi-annual  interest  on  the  bonds 
issued  for  that  stock ;  any  surplus  to  go  to  the  sinking  fund. 

The  surplus  revenue  distributed  to  the  States  in  1837  ^^s  deposited  by 
this  State  in  the  Bank  of  the  State  and  branches. 

Thus  Alabama  had  everything  prepared  for  the  millenium  just  as  the 
judgment  day  dawned. 

The  whole  amount  of  bonds  issued  by  Alabama  for  banks  was  $15.4 
millions.  The  State  Treasurer  reported  that  there  was  no  record  of  some  of 
the  bonds  in  any  department.*  In  1837,  there  were  seven  banks  in  all,  in 
which  the  State  owned  $10.  i  millions  stock,  of  which  $6.8  millions  were  in 
the  Bank  of  the  State  and  branches.  The  circulation  of  the  State,  November 
I,  1836,  was  $7  millions;  February  i,  1837,  $10  millions;  May  i,  1837,  $5.5 
millions.  At  the  last  date  the  Bank  of  the  State  and  branches  had  $9  of  cir- 
culation to  $1  of  specie;  the  demand  liabilities  were  to  the  cash  assets  as  18 
to  I.  The  circulation  of  the  two  stock  banks  wlo  to  their  specie  as  3  1-2  to  i ; 
their  immediate  liabilities  to  their  cash  assets  as  7  to  i.  The  profits  of  all 
the  banks  from  November  to  May  were  nearly  ten  per  cent.f 

The  notes  of  the  Bank  of  the  State  were  decided  not  to  be  bills  of  credit 
by  the  Supreme  Court  of  the  State,  |  and  by  the  Supreme  Court  of  the  United 
States.  §  The  latter  case,  Darrington  rs.  the  Bank  of  Alabama,  is  a  reaffir- 
mation of  Briscoe's  case. 

Louisiana. — "A  Bank  of  the  State  of  Louisiana"  was  chartered  April  7, 
1824;  capital  $4  millions;  half  by  the  State;  the  installments  of  the  private 
subscriptions  extended  over  two  years ;  State  subscription  in  five  per  cent, 
bonds  at  $100  of  bonds  for  $83  1-3  of  stock;  bonds  payable  to  the  bank  and 
assignable  by  it;  the  bank  to  pay  the  interest  on  the  bonds  out  of  the  State 
dividends  and  the  surplus  to  be  a  sinking  fund  for  the  principal;  if  the 
dividends  were  less  than  the  interest,  the  bank  was  to  pay  the  deficiency 
and  be  repaid  by  the  State;  the  Governor  and  Senate  to  appoint  six  out  of 
thirteen  directors;  the  directors  to  choose  the  president;  half  the  capital  to  be 
loaned  on  land;  never  to  suspend  under  twelve  percent,  penalty;  to  have 
five  branches,  the  directors  of  which  to  be  appointed  by  the  directors  of  the 
mother  bank.  In  a  supplementary  act  of  April  loth,  it  was  ordered  that  $5 
should  be  paid  in  cash  on  each  share,  and  $15  in  a  promissory  note  with 
endorsement.  Nothing  is  said  of  its  relation  to  the  former  Bank  of  the  State 
of  1 8 18.  In  a  supplementary  act  of  November  30th  it  is  called  the  Bank  of 
Louisiana. 


*  Johnson's  Report  on  Assumption. 


t  I  Raguet's  Register,  56. 
I  1}  Howard  u.    (i8ji.) 


t  i  Alabama,  158.    (1841.) 


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244 


y4  HISTORY  OF  BANKING. 


The  State  directors  in  the  "Bank  of  Louisiana"*  were  directed,  April  7, 
1826,  to  remonstrate  against  a  reservation  of  surplus  profits  greater  than  the 
Legislature  thought  necessary. 

The  Bank  of  the  State  sold  the  State  bonds  to  Thomas  Wilson  &  Company, 
of  London,  October  23,  1824,  The  bank  had  resolved  that  if  the  bonds  sold 
above  83  1-3,  the  surplus  could  not  be  divided  as  profits,  except  in  proportion 
as  the  surplus  of  the  State  dividends  above  the  Slate  interest,  being  applicable 
to  the  redemption  of  the  bonds,  should  cancel  $400,000  of  them  (that  is,  the 
first  sixth  of  the  total  issue  of  $2  millions  at  83  1-3).  The  State's  share  of 
the  profit  on  the  bonds  was  $300,931.  The  Legislature  by  an  act  of  March 
24,  1827,  ordered  the  bank  to  buy  bonds  with  this  amount  and  put  them  in 
the  sinking  fund.  The  bank  appears  to  have  intended  to  hold  this  sum  as  a 
further  guarantee  to  the  bond-buyers.  On  the  same  day,  the  number  of 
State  directors  was  increased  to  seven. 

We  now  come  to  the  institution  which  proved  the  germ  of  a  new  class 
of  land  banks.  The  Consolidated  Association  of  the  Planters  of  Louisiana 
was  incorporated  March  16,  1827.  The  capital  of  $2  millions  was  to  be 
raised  by  loan,  the  company  selling  bonds  and  taking  mortgages  from  its 
members  for  the  loans  made  to  them.  On  this  plan  the  scheme  was  not 
workable.  The  bonds  of  the  company  could  not  be  sold,  probably  because 
there  was  no  available  capital  in  the  State,  and  the  association  could  not 
command  credit  abroad.  Another  act  was  accordingly  passed,  February  19, 
1828,  by  which  the  State  lent  its  bonds  to  this  company  to  the  amount  of 
$2.5  millions,  thus  putting  the  State  credit  in  the  place  of  their  credit,  and 
enabling  them  to  bring  in  capital  from  abroad.  The  company  was  to 
guarantee  the  State  by  assigning  to  it  mortgages,  given  by  the  stockholders, 
to  the  amount  of  $3  millions,  for  their  stock.  Ten  thousand  shares  were 
given  to  the  State  as  a  bonus. 

The  New  Orleans  Gas  Light  Company,  which  afterwards  became  a  bank, 
was  chartered  February  7,  1829. 

The  City  Bank  of  New  Orleans  was  incorporated  March  3,  1831,  until 
1850;  capital,  $2  millions;  to  lend  the  State  $100,000;  lowest  note  $5;  never 
to  suspend  redemption  in  "current  money  of  the  United  States"  under  a 
penalty  of  twelve  per  cent.  Existing  banks  were  authorized  to  pay  interest 
on  deposits.  Two  days  later  the  New  Orleans  Canal  and  Banking  Company 
was  incorporated  until  1870;  $4  millions  capital;  to  cut  a  canal  through  the 
city  from  Lake  Ponchartrain.  It  was  to  lend  the  State,  when  required  to  do 
so,  not  over  $600,000,  for  not  less  than  ten  nor  more  than  twenty-five  years, 
on  bonds  of  the  State.  It  was  to  have  three  br-^n  :hes  and  two-thirds  of  the 
capital  at  each  was  to  be  loaned  on  real  estate;  so  that  it  appears  that  its 
capital  was  to  be  used  three  times,  for  a  canal,  a  loan  to  the  State,  and 
private  loans. 

*  The  usage  came  to  be  that  the  one  chartered  in  1818  was  called  the  Louisiana  State  Bank,  and  that  of  1824,  the  Bank 
of  Loumana. 


until 
[never 
ider  a 
iterest 

ipany 
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to  do 

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|of  the 

lat  its 
and 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


245 


April  2,  1832,  the  Union  Bank  of  Louisiana  was  chartered.  It  was  an 
extension  and  perfection  of  the  idea  of  the  Consolidated  Association,  and 
was  afterwards  imitated  in  Florida,  Arkansas,  and  Mississippi.  The  capital 
was  $7  millions;  to  be  subscribed  by  citizens  and  landowners  of  Louisiana 
only.  The  State  was  to  issue  to  the  bank  $7  millions  of  assignable  bonds, 
for  which  the  subscribers  to  the  stock  were  to  give  mortgage  security.  If 
mortgaged  property  was  offered,  double  the  previous  mortgage  must  be 
deducted,  and  it  might  be  taken  as  security  only  for  the  residue.  The 
period  of  the  bank  was  twenty-five  years;  the  Governor  and  Senate  to 
appoint  six  out  of  twelve  directors;  lowest  note  $5;  commissioners  in  each 
parish  were  to  appraise  property  as  security  for  stock  subscription  or  for 
loan ;  one-sixth  of  the  profits  to  go  to  the  State  and  the  other  profits  to 
accumulate  for  the  payment  of  the  State  bonds;  never  to  suspend  under 
ten  per  cent,  penalty;  the  capital  exempt  from  all  taxes;  the  State  entitled  to 
a  credit  of  $500,000  and  each  stockholder  to  a  credit  equal  to  half  his  shares; 
during  the  three  last  years  of  the  period,  the  bank  to  be  wound  up;  to  be 
eight  branches;  two-thirds  of  the  capital  at  each  to  be  lent  on  mortgage; 
these  loans  to  be  repaid  in  eight  years  by  annual  renewals  and  curtailments; 
all  of  them  to  end  with  the  twentieth  year. 

A  year  later,  April  i,  1833,  another  of  these  "property  banks"  was 
founded;  the  Citizens'  Bank,  with  $12  millions  capital;  the  stock  to  be 
subscribed  by  mortgage  notes;  the  bank  to  issue  bonds  bearing  a  statement 
of  the  mortgages  of  the  stockholders  behind  them;  the  titles  to  be  searched 
and  the  property  valued  by  persons  appointed  by  the  bank;  to  have  full 
banking  powers;  never  to  suspend;  the  State  to  be  entitled  to  a  credit  of 
$500,000;  part  of  the  capital  to  be  allotted  amongst  the  parishes;  to  last 
fifty-one  years ;  lowest  note  $5.  If  this  bank  did  not  dig  a  canal  named, 
within  eight  years,  it  was  to  pay  the  State  $500,000.  It  also  had  permission 
to  build  a  railroad.  Commenting  on  this  charter,  the  Supreme  Court  of  the 
State  said  that  insolvent  laws  and  the  statute  of  distributions  did  not  exist 
for  debts  to  it.  "No  legal  incapacity  could  be  pleaded  by  its  debtors. 
No  exceptional  jurisdiction  could  obstruct  the  collection  of  debts  due  to  it."* 

In  the  same  year  the  Commercial  Bank  of  New  Orleans  was  organized 
to  build  water  works,  and  the  Mechanics  and  Traders'  Bank,  of  whose 
directors  five  were  to  be  mechanics. 

In  1836,  a  number  of  banks,  improvement  schemes,  and  railroads  were 
authorized.  It  appears  that  the  Citizens'  Bank  had  not  been  able  to  raise  its 
capital.  January  30,  1836,  a  law  was  passed  to  issue  State  bonds  to  enable 
it  to  do  so;  the  State  to  take  the  stock  mortgages,  which  must  exceed  the 
bonds  by  one-fifth ;  the  State  was  to  have  one-sixth  of  the  profits  and  the 
bank  was  to  pay  as  a  bonus  annually,  so  long  as  the  charter  lasted,  $5,000 
to  each  of  three  colleges.  The  bonds  were  to  be  sold  within  two  years  at 
not  less  than  par.     Upon  the  subscription  of  its  stock,   167  subscribers  in 

*  1}  Louisiana,  219.  (1857.) 


J    J 


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246 


A  HSTORY  OF  BANKING. 


the  city  got  shares  to  the  amount  of  $4.7  millions;  107  subscribers  in  the 
country  got  shares  for  %}.2  millions.*  It  carried  on  two  lines  of  business, — 
a  loan  office  business  and  that  of  discounts  and  deposits,  also  issuing  circu- 
lation. March  \},  1839,  the  Legislature  ordered  it  to  establish  more 
branches. 

The  Commercial  Bank  denied  the  right  of  the  State  to  visit  it,  except 
with  respect  to  its  water  works.  By  resolutions  of  March  2,  1836,  the 
Attorney-general  was  called  on  for  his  opinion  on  this  point,  and  to  test  it 
in  the  courts  if  he  thought  there  was  hope  of  establishing  such  a  right. 

Just  before  the  crisis  occurred  a  legislative  committee,  commenting  on 
the  two  classes  of  banks  in  the  State,  the  stock  banks  and  the  mortgage  loan 
companies,  gave  the  preference  to  the  latter  because  the  former,  whose 
stock  was  chiefly  owned  by  persons  out  of  the  State,  drew  away  not  only 
the  interest  on  their  capital  but  also  all  the  profits  on  it,  while,  in  the  second 
class  of  banks,  the  outsiders  were  paid  only  the  pure  interest  on  their  capi- 
tal and  the  profits  remained  in  the  State. 

Florida. — The  first  act  passed  by  the  Legislative  Council,  in  1828,  over 
a  veto,  was  the  charter  of  the  Bank  of  Florida.  The  charter  was  repealed 
and  re-enacted  in  the  following  year.  This  bank  was  the  subject  of  much 
complaint  because  it  was  managed  with  a  view  to  private  profit,  and  dis- 
appointed the  hopes  that  it  would  serve  the  public.  Hence  the  Central 
Bank  was  incorporated  in  1832,  which  bought  the  former.  The  Bank  of 
West  Florida  was  chartered  in  1829,  over  a  veto,  and  the  charter  amended 
in  the  following  years,  likewise  without  the  Governor  s  assent.  The  Com- 
mittee on  Banks  in  1839!  said  of  it:  "The  pledges  made  having  been  vio- 
lated, and  thousands  of  dollars  of  the  notes  of  this  bank  remaining  unre- 
deemed, and  the  bank  appearing  to  have  no  fixed  or  permanent  abiding 
place,  subsequent  Legislatures  directed  proceedings  to  be  instituted  to 
recover  its  violated,  lost,  and  fugitive  charter.  Obedience  to  these  direc- 
tions has  been  neglected,  and  no  proceedings  have  been  instituted.  This 
charter  is  defunct  from  misuser  as  well  as  non-user.  The  bank  is  not  to  be 
found  in  the  Territory ;  no  return  has  been  made  from  it  for  several  years, 
although  the  Committee  have  been  informed  that  certain  persons,  formerly 
stockholders,  and  still  claiming  to  own  the  charter,  have  been  endeavoring 
to  effect  a  sale  of  it." 

The  Bank  of  Pensacola  was  chartered  in  1831,  against  a  veto.  Many 
amendments  followed  until  its  capital  stood  at  $2.5  millions.  "The  Governor 
was  authorized  to  loan  to  this  bank  the  guaranty  of  the  Territory  for  $500,000 
of  its  bonds,  to  be  issued  upon  certain  conditions;  two-thirds  of  the  proceeds 
of  which  are  to  be  appropriated  in  the  creation  of  a  railroad  to  Pensacola, 
and  the  other  third  to  be  applied  to  banking  purposes;  but  no  dividends  to 
be  made  until  the  bonds  are  paid.  No  bond  was  given,  or  other  equivalent 
made,  for  the  charter  or  for  the  aforesaid  guaranty,  nor  any  security  but  the 


*  Treasury  Report,  January  8,  i8)8. 


t  The  citations  wliich  oUow  are  from  its  report. 


V 


THE  MULTIPLICATION  OF  LOCAL  'BANKS. 


247 


any 

Irnor 

[,000 

leeds 

;ola, 

is  to 

dent 

the 


hypothecation  of  the  stock  of  the  banic  and  railroad."  The  individual 
liability  of  the  stockholders  of  this  bank  was  repealed,  February  10,  1838, 
but  it  was  still  affirmed  on  all  the  bonds  issued  for  it. 

"In  1832,  the  Central  Bank  of  Florida  was  incorporated  against  the 
executive  veto.  Its  capital  was  $1  million,  and  the  duration  of  its  charter 
extended  till  1850.  This  bank  is  in  good  credit,  and  is  judiciously  man- 
aged, and  there  can  be  no  doubt  of  its  continuance  in  sound  condition 
while  under  the  same  control  as  at  present." 

"In  1832  the  Merchants  and  Planters'  Bank  of  Magnolia  was  incorpo- 
rated, with  a  capital  of  $600,000.  It  got  a  short  time  after  into  the  hands  of 
some  speculators  from  an  adjoining  State,  and  in  January,  1834,  broke;  but, 
notwithstanding,  upon  the  most  solemn  pledges,  as  in  the  case  of  the  Bank 
of  West  Florida,  of  speedy  redemption  of  its  paper,  a  supplementary  act 
amending  the  charter  was  passed  within  a  fortnight  afterwards,  against  the 
veto  of  the  Governor.  These  pledges  have  never  been  redeemed,  and 
thousands  of  dollars  of  the  worthless  notes  of  this  institution  are  unpaid,  in 
the  hands  of  our  suffering  citizens." 

The  Commercial  Bank  was  incorporated  in  1833;  capital,  $500,000. 
The  Committee  of  1839  spoke  of  it  as  "of  undoubted  credit  and  solvency." 

In  1833,  the  Union  Bank  of  Florida,  destined  to  become  the  most  famous 
of  them  all,  was  incorporated.  The  charter  is  not  copied  as  to  language 
from  that  of  the  Louisiana  Union  Bank,  but  the  institution  is  very  closely 
imitated.  The  capital — $1  million,  increasable  to  $3  millions — was  to  be 
raised  by  bonds  of  the  Territory,  made  payable  to  the  order  of  the  bank,  for 
which  the  Territory  was  to  be  secured  by  mortgages  of  the  lands  and  slaves 
of  the  stockholders.  A  variation  in  this  charter  was  that  here  there  was 
to  be  no  distribution  of  profits  until  the  bonds  were  paid ;  then  only  by 
permission  of  the  Legislature,  and  one-half  the  profits  to  go  to  the  Territory. 

The  Farmers'  Bank  was  chartered  in  1834;  capital  $75,000.  The  Com- 
mittee of  1839  could  not  find  out  anything  about  it.  It  was  reported  to  be 
operating  in  Georgia. 

"In  1835,  the  Southern  Life  Insurance  and  Trust  Company  was  char- 
tered, with  powers  and  privileges  of  the  most  extensive  and  diversified 
character.  Its  capital  is  $2  millions,  with  the  privilege  of  increasing  it  to 
$4  millions.  It  is  directed  to  report  to  the  Court  of  Appeals  annually,  which 
report  is  to  be  made  to  Council.  No  such  report  has  ever  been  made,  or 
any  other.  The  capital  stock  of  said  bank  is  to  be  taxed  at  the  same  rate  as 
all  other  personal  property  of  the  Territory,  but  the  tax  is  not  to  exceed 
$5,000.  The  Territorial  guaranty  is  to  be  given  on  the  bonds  of  the  corpo- 
ration, under  certain   conditions;  $ of  these  bonds  have  been  thus 

guaranteed.  This  bank  claims  to  be  located  at  St.  Augustine,  but,  it 
is  said,  is  chiefly  conducted  in  New  York,  and  has  an  agency  at  Appalachi- 
cola.  No  tax  has  ever  been  paid,  and  the  Committee  are  totally  in  the  dark 
in  regard  to  the  capital  or  other  affairs  of  the  bank,  in  consequence  of  the 
neglect  to  make  returns  according  to  its  charter  and  the  general  law  of  1833." 


ini 


m 


H    ! 


V' 


248 


A  HISTORY  OF  BANKING. 


At  the  session  of  the  Council  in  1836  the  St,  Joseph's  Baniting  Company, 
the  Florida  Insurance  and  Banking  Company  at  Pensacola,  and  the  St. 
Joseph's  Insurance  Company  (without  banking  privileges),  were  incorpo- 
rated. 

These  proceedings  of  the  Territory  had  attracted  the  attention  of  Con- 
gress. Webster  made  a  report  from  the  Committee  on  Finance  strongly 
condemning  the  plan  of  most  of  these  institutions.*  The  result  was  the  act 
of  July  I,  1836,  by  which  it  was  enacted  that  no  law  of  a  Territory  incorpo- 
rating a  bank  should  be  of  force  until  approved  by  Congress,  and  all  the  acts 
of  Florida  of  i8j6,  which  created  banks,  were  disallowed.  On  this  the 
Committee  whom  we  have  been  quoting  say:  "This  course  on  the  part  of 
Congress  is  not  such  as  the  people  of  this  Territory  had  a  right  to  expect, 
relying  as  they  have,  upon  the  liberality  and  intelligence  of  those  bodies." 

Few  will  think  that  the  power  of  the  federal  government  to  disallow  the 
acts  of  a  Territory  had  been  exercised  any  too  soon.  In  1838,  it  was 
reported  that  the  old  Bank  of  West  Florida  had  been  re-organized,  f 

One-fifteenth  of  the  shares  of  the  Union  Bank  were  held  by  one  man, 
one-sixth  by  three  men,  one-third  by  eleven  men,  one-half  by  twenty-five 
men,  and  five-sixths,  or  nearly  the  whole  by  eighty  men;  who  in  addition 
to  the  loans  upon  their  mortgages  were  supposed  to  be  otherwise  indebted 
to  the  institution.!  Evidently  a  clique  got  the  whole  enterprise  into  their 
hands,  substituted  the  stock  for  the  bonds,  sold  them,  divided  the  proceeds 
as  loans  on  the  mortgages  of  their  plantations.  Then  the  worse  the  bank 
became,  the  cheaper  they  could  buy  its  notes  with  which  to  pay  the  loans ; 
or,  the  more  desperate  the  confusion  and  bankruptcy,  the  greater  the  chance 
of  evading  payment  altogether.  If  interest  was  paid,  the  loans  had  twenty 
or  thirty  years  to  run,  and  the  mortgaged  property  was  barred  against  other 
creditors.  If  the  lands  were  morigaged  for  all  they  were  worth,  the  insiders 
endorsed  for  each  other  and  borrowed  more.  There  were,  therefore,  several 
lines  of  exploitation  on  which  they  could  operate. 

Mississippi  entered  on  her  great  experiment  in  banking  February  10,  1830, 
with  the  charter  of  the  Planters'  Bank.  The  preamble  states  the  purpose  to 
be  to  give  an  impulse  to  labor,  by  an  increase  of  the  circulating  medium ;  to 
relieve  taxation  by  creating  a  revenue  for  the  people;  and  to  "enable  them 
to  realize  the  blessings  of  a  correct  system  of  internal  improvements."  This 
bank  was  established  at  Natchez;  $3  millions  capital,  of  which  $2  millions  by 
the  State;  until  1855;  subscriptions  to  be  in  specie  and  notes  of  the  Bank  of 
the  State;  the  Auditor  to  pay  the  State  subscriptions,  with  five  per  cent, 
bonds,  redeemable  in  four  sections,  in  ten,  fifteen,  twenty,  and  twenty-five 
years,  drawn  to  the  bank  and  assignable  by  it;  the  bank  to  sell  the  bonds 
and  provide  for  the  interest;  surplus  of  dividends  over  the  interest  of  the 
bonds  to  be  a  sinking  fund  to  redeem  the  bonds;  if  the  interest  was  greater 
than  the  dividends,  the  bank  was  to  pay  it ;  the  Governor  and  Senate  were 


*  24  Cong.,  I  Sess.,  6  Sen.,  409. 


+  I  Raguet's  Register,  366. 


X  Committee  on  Banks,  February  15,  1840. 


1840. 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


249 


to  appoint  seveii  directors,  the  stockholders  six;  the  Governor  was  to  sell 
the  stock  of  the  State  in  the  Bank  of  the  State,  except  50  shares,  and  apply 
the  proceeds  on  the  State  subscriptions  in  this  bank;  the  State  funds  invested 
in  the  bank  were  to  be  kept  separate;  the  surplus  in  the  treasury  and  the 
miscellaneous  revenue  were  to  go  into  the  capital  of  the  bank;  no  note  to  be 
issued  under  $5,  and  the  note  issue  not  to  exceed  three  times  the  capital, 
plus  the  money  on  deposit;  half  the  capital  was  to  be  loaned  on  mortgages 
of  lands  to  be  valued  by  five  commissioners  appointed  by  the  president  and 
directors,  in  each  senatorial  district;  the  loans  were  to  be  allotted  between 
those  districts;  statements  were  to  be  rendered  as  often  as  the  Legislature 
might  require.  The  notes  were  receivable  by  the  State  and  the  State  money 
was  to  be  deposited  in  the  bank.  It  was  exempt  from  taxation.  There 
were  to  be  branches.  On  the  same  day  it  was  provided  that  the  Bank  of 
the  State  of  Mississippi  might  discount  paper  at  twelve  months,  at  not  over 
8  per  cent. 

The  Bank  of  the  State  of  Mississippi  was  authorized  to  wind  up,  December 
19,  1831,  taking  no  new  business  after  January  1st.  It  might  renew  loans 
on  notes  of  deceased  persons  until  December  }\,  1837,  and  might  deal  in 
exchange  so  long  as  the  Planters'  Bank  consented.  In  consideration  of 
these  privileges,  the  bank  was  to  release  the  State  from  all  claims  for 
damages,  etc.,  apparently  on  account  of  the  breach  of  the  promise  that  no 
other  bank  should  be  established  before  1840. 

The  charter  of  the  Planters'  Bank  was  revised  February  5,  1833,  to  last 
until  1870.  The  private  subscriptions  might  be  increased  $1  million  and  the 
State  was  to  add  $1.5  millions,  in  State  bonds,  to  be  negotiated  by  the  bank. 
The  Agricultural  Bank  of  Mississippi  was  chartered  February  27,  1833; 
$2  millions  capital;  until  1855;  the  issue  limited  to  three  times  the  paid-up 
capital;  half  the  capital  to  be  lent  in  loans  at  not  less  than  one  year.  There 
was  no  provision  about  suspension  or  specie  redemption. 

At  the  next  session,  December  25,  1833,  the  Commercial  and  Railroad 
Bank  at  Vicksburg  was  chartered,  because  more  banking  facilities  were 
needed;  $4  millions  capital;  "identified  and  incorporated  with  the  Clinton 
and  Vicksburg  Railroad  Company,"  the  charter  to  become  null  if  the  railroad 
was  not  built  in  six  years;  the  bank  to  cease  in  thirty-two  years;  the  note 
issue  not  to  exceed  three  times  the  capital  and  money  on  deposit;  it  was  to 
have  branches;  no  provisions  about  suspension  or  specie  redemption. 

There  was  now  a  lull  for  two  or  three  years.  The  Jackson  and  Brandon 
Railroad  and  Bridge  Company  was  incorporated  February  5,  1836,  appar- 
ently without  banking  privileges,  and  the  Mississippi  and  Alabama  Railroad 
Company,  February  9th.  This  latter  company  might  issue  notes  for  $5  and 
above,  to  an  amount  not  exceeding  twice  the  capital  not  expended  on  the 
railroad;  one-third  of  the  capital  to  be  lent  on  loans  for  one  year  or  more; 
the  banking  powers  to  cease  in  i860.  This  company  was  known  popularly 
as  the  Brandon  Bank,  the  banking  house  being  at  Brandon.  The  Grand 
Gulf  Railroad  and  Banking  Company  was  chartered  February  20th;  one 


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section  provides  that  this  corporation  "together  with  all  other  banking 
institutions  in  this  State,  shall  at  all  times  be  obliged  to  redeem  their  notes 
in  specie."  If  any  one  of  them  refuses  to  do  so,  the  cashier  must  endorse  on 
the  note  the  date  of  refusal,  under  a  penalty  of  $500,  recoverable  by  the 
holder;  the  note  so  endorsed  was  to  bear  interest  at  twelve  and  one-half  per 
cent,  per  annum,  from  the  date  of  endorsement  until  paid.  February  26th, 
the  Commercial  Bank  of  Columbus  was  incorporated  with  a  capital  of 
$1  million.  On  the  same  day  the  Mississippi  Railroad  Company  was  incor- 
porated. Banking  was  not  explicitly  included  in  its  functions,  but  it  might 
issue  bonds  secured  by  mortgages,  given  by  the  stockholders  on  their  own 
estates,  of  double  value.  On  the  following  day,  the  Tombigbee  Railroad 
Company  and  the  Aberdeen  and  Pototoc  Railroad  Company  were  incor- 
porated, both  with  banking  privileges;  and  on  the  same  day  the  Commercial 
and  Railroad  Bank  of  Vicksburg  was  authorized  to  add  $2  millions  to  its 
capital,  in  order  to  build  a  railroad  to  some  undefined  place  on  the  northern 
boundary  of  Madison  county.  On  the  same  day  also  the  Commercial  Bank 
of  Natchez  was  founded,  with  $2  millions  capital.  On  the  same  day  also 
the  Yazoo  Railroad  Company  was  incorporated,  but  banking  is  not  discernible 
in  its  powers. 

The  first  proposition  for  the  Union  Bank  of  Mississippi  was  made  in  1835.* 
It  was  imitated  and  borrowed  with  only  a  few  petty  variations  from  the 
Louisiana  Union  Bank.  The  act  incorporating  it  was  passed  January  21, 
18^7;  capital,  $15.5  millions;  subscriptions  to  be  taken  in  each  county; 
citizens  and  landowners  alone  to  subscribe;  the  State  to  issue  bonds  to  the 
bank,  payable  in  four  sections,  in  twelve,  fifteen,  eighteen,  and  twenty 
years,  endorsable  and  negotiable  by  the  bank,  principal  and  interest  to  be 
paid  by  the  bank;  the  stockholders  to  give  mortgages  to  secure  their  sub- 
scriptions; the  land,  if  already  mortgaged,  being  received  as  security  only 
for  the  residue  after  subtracting  twice  the  existing  mortgage ;  to  last  forty 
years;  the  Legislature  to  elect  five  directors  out  of  thirteen;  the  stockholders, 
on  subscribing,  to  pay  $10  on  each  share  in  cash;  three  commissioners  in 
each  designated  district  to  appraise  the  lands  mortgaged  for  the  stock;  no 
notes  under  $10;  all  profits  of  the  bank  to  accumulate  until  the  first  section 
of  the  State  bonds  is  paid  (twelve  years) ;  then  any  surplus,  after  paying 
these  bonds,  to  be  divided  amongst  the  stockholders;  then  the  profits  to 
accumulate  again  until  the  second  section  of  the  State  bonds  should  be 
payable,  with  a  division  of  any  surplus  amongst  the  stockholders,  and  so  on, 
but  the  State  to  have  as  a  bonus  one-tenth  of  the  net  gains  of  the  bank; 
never  to  suspend  under  fifteen  per  cent,  penalty;  the  parent  board  to  make 
rules  for  the  branches;  the  capital  to  be  exempt  from  taxation;  the  bank 
might  sell  lands  mortgaged  to  it  for  stock  or  loans  and  was  to  be  a  preferred 
creditor ;  the  Governor  to  deliver  the  bonds  pro  rata  as  the  subscriptions  went 
on.   The  State  was  entitled  to  a  loan  of  $200,000,  and  each  stockholder  was 


'  15  Mississippi,  615. 


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THE  MULTIPLICATION  OF  LOCAL  BANKS. 


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entitled  to  a  credit  equal  to  one-half  his  shares  for  twenty-five  years;  that  is, 
four  per  cent,  to  be  paid  annually  on  the  principal,  the  notes  being  renewed 
annually.  There  were  to  be  seven  branches;  two-thirds  of  the  capital  was 
to  be  lent  on  real  estate,  one-third  on  promissory  notes;  borrowers  on 
mortgage  were  to  pay  one-eighth  annually  on  their  notes.  The  four  last 
years  of  the  charter  period  were  to  be  employed  in  winding  up  the  bank. 
After  the  bonds  were  issued  by  the  State  to  the  bank,  and  the  bank  was 
started,  the  $10  cash  per  share  was  to  be  paid  back. 

The  Constitution  of  1832  provided  that  no  loan  of  money  should  ever  be 
raised  on  the  credit  and  faith  of  the  State,  unless  the  law  should  be  passed 
by  a  majority  of  the  members  of  each  House,  published  for  three  months 
previous  to  the  next  regular  election  in  three  newspapers  of  the  State,  and 
re-passed  by  both  Houses  of  the  next  following  Legislature.  The  charter  of 
the  Union  Bank  was  passed  in  the  House,  47  to  7,  and  in  the  Senate,  1 1  to  8. 

There  was  a  called  session  of  the  Mississippi  Legislature  in  May,  1837, 
at  which  a  great  number  of  banks,  insurance  companies,  railroads,  etc., 
were  chartered  just  as  the  financial  crisis  occurred.  April  28th,  the  Northern 
Bank  of  Mississippi  was  chartered  until  1862;  $2  millions  capital;  lowest 
note  $5;  if  redemption  refused,  the  cashier  to  endorse;  twelve  and  one- 
half  per  cent,  penalty;  half  the  capital  on  loans  for  one  year  or  more;  must 
build  a  specified  railroad  within  ten  years,  or  forfeit  the  charter.  Then  fol- 
lowed charters  every  few  days  for  the  Citizens'  Bank,  the  banks  of  Vicks- 
burg,  Granada,  Port  Gibson,  and  Lexington.  May  nth,  it  was  enacted 
that  the  chartered  banks  might  issue  post-notes  to  bear  interest  receivable 
for  taxes,  having  from  six  to  thirteen  months  to  run;  the  interest  was  not  to 
exceed  five  per  cent.,  and  the  notes  were  to  be  loaned  at  not  over  nine  per 
cent.  If  not  redeemed  when  due,  to  be  endorsed  and  bear  twelve  and  one- 
half  per  cent,  interest.  The  bank  must  receive  them  for  debts  to  itself, 
whether  they  were  matured  or  not;  their  amount  not  to  exceed  the  capital; 
no  State  officer  was  to  take  the  post-notes  of  any  bank  which  had  failed  to 
pay  any  of  its  notes,  at  any  time,  in  specie.  The  next  day  three  Bank 
Commissioners  were  constituted  to  visit  and  examine  the  banks  and 
moneyed  corporations;  they  might  proceed  in  chancery  against  erring  cor- 
porations, and  were  to  report  annually  to  the  Legislature,  by  which  they 
were  to  be  elected.  Any  three  banks  might  call  for  an  examination  of  a 
designated  one. 

The  Mississippi  Railroad  Company  was  re-organized  May  12th  and  char- 
tered as  a  bank  with  full  powers.  In  the  case  of  Hayne  vs.  Beauchamp,* 
we  learn  that  the  bank  operated  a  "simultaneous  transaction"  on  the  sub- 
scriptions; ten  percent,  was  due  upon  subscription,  for  which  a  note  was 
given  and  discounted  by  the  bank,  and  a  check  given  to  pay  the  install- 
ment at  the  same  time.  It  was  held  that  this  did  not  constitute  the  person 
in  question  a  subscriber  to  the  stock,   nor  liable  as  such,  since  specie  or 

*  5  Smedes  and  Marshall,  515. 


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A  HISTORY  OF  BANKING. 


notes  of  specie-paying  banks  were  alone  receivable  in  payment  of  subscrip- 
tions,* but  the  note  was  binding  for  its  amount,  and  was  treated  as  a  note 
for  money  borrowed,  with  which  to  pay  the  installment. 

The  Benton  and  Manchester  Railroad  and  Banking  Company  was  incor- 
porated May  1 2th,  the  subscribers  to  the  stock  to  mortgage  their  lands,  and 
these  mortgages  to  be  made  the  security  for  bonds  to  be  issued.  On  the 
following  day,  the  Vicksburg  Water  Works  and  Banking  Company  and  the 
Hernando  Railroad  and  Banking  Company  were  incorporated. 

Having  finished  these  labors  they  adjourned  and  were  ready  for  the 
panic.  It  does  not  seem,  however,  to  have  made  much  impression  on 
them  before  the  next  regular  session.  At  that  time  the  charter  of  the  Union 
Bank  was  duly  re-enacted,  but,  February  5,  1838,  a  supplementary  charter 
was  passed  which  made  some  very  important  changes  in  the  organization 
of  the  institution.  The  State  took  $s  millions  of  stock  and  so  changed  its 
relation  to  the  bank,  becoming  jointly  liable  and  not  simply  lending  bonds  to 
it.  The  bonus  to  the  State  of  one-tenth  of  the  profits  was  stricken  out,  and 
also  the  provision  that  the  State  might  have  a  loan  from  the  bank  of 
$200,000.  There  was  no  clause  in  the  charter  which  explicitly  granted  the 
power  to  issue  notes.  This  was  only  inferred  from  a  provision  that  it  might 
not  issue  any  note  under  five  dollars.  It  put  on  its  post-notes  a  statement 
that  they  were  issued  upon  a  pledge  of  the  faith  of  the  State  which  was  not 
true.f 

The  Paulding  and  Pontotoc  Railroad  Company  was  chartered  February 
16,  1838;  mortgages  for  stock  being  made  security  for  bonds,  as  in  former 
cases;  and  it  might  issue  notes  for  half  its  capital.  On  the  same  day  an 
act  was  passed  over  a  veto,  suspending  for  eighteen  months  the  penalty 
of  twelve  and  one-half  per  cent,  on  post-notes,  not  paid  on  demand  at 
maturity. 

The  amount  of  banking  capital  provided  for  in  bank  charters  between 
l8j3  and  1838  was  %^}.2  millions. 

Tennessee. — The  Bank  of  the  State  of  Tennessee,  No.  III.,  was  incorpo- 
rated December  20,  1831 ;  $2  millions  capital;  at  Nashville,  with  one  branch 
in  East  Tennessee  and  one  in  West  Tennessee.  It  appears  to  have  been 
intended  that  $500,000  should  be  subscribed  by  the  State,  and  the  Legisla- 
ture was  to  appoint  five  directors  out  of  fifteen.  The  public  faith  was 
pledged  for  the  redemption  of  the  notes  and  debts  in  proportion  to  the  State 
stock.  The  old  Bank  of  the  State,  No.  II.,  was  to  pay  to  this  one  the 
$20,000  which  had  been  subscribed  to  it  by  the  State,  and  that  sum  was  to 
be  apportioned  amongst  the  counties  for  schools  in  the  manner  provided  in 
the  act  of  January  1 1,  1830. 

At  a  called  session  in  1832,  the  first  steps  taken  seem  to  indicate  trouble. 
The  Bank  of  the  State,  No.  II.,  was  ordered  to  be  wound  up  at  once,  and  all 
the  funds  to  be  put  in  the  Union  Bank  of  Tennessee  as  soon  as  the  latter 


•  »i  Wenden,  »ii.  (1839.) 


t6  Howard,  Miss.,  617. 


THE  MUUWUC AT/ON  OF  LOCAL  BANKS. 


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should  .st;irt.  That  bank  was  incnrporatcJ  Octolu-r  iHth;  $i  inillions  capi- 
tal; Iiair  by  the  State;  to  be  paid  by  live  per  cent,  bonds,  at  equal  steps 
with  the  private  subscription;  the  bonds  to  be  payable  in  lil'leen,  twenty, 
twenty-live  and  thirty  years;  the  Governor  to  appoint  live  directors;  the 
State  dividends  to  go  to  the  school  fund;  no  loans  for  more  than  a  year;  ten 
per  cent,  penalty  for  non-redemption;  lowest  note  §s.  It  mij^ht  issue  notes 
payable  at  any  bank  of  "respectable  standing"  in  the  United  States;  to  be 
A  State  depository;  never  to  issue  more  than  double  the  capital.  The 
charter  of  Hank  of  the  State,  No.  III.,  was  repealed,  probably  because  the 
private  subscriptions  could  not  be  obtained. 

The  cashier  of  the  Nashville  branch  of  the  Bank  of  the  United  States 
wrote  to  Jaudon,  October*  21st,*  that  the  distress  for  money  in  Tennessee 
had  led  to  the  charter  of  a  new  bank.  "The  law  passed  contrary  to  my 
calculation,  and  from  the  present  .scarcity  of  money  is  likely  to  become  so 
great  a  favorite  with  the  people  at  large  as  to  fill  the  subscription  for  the 
purpose  of  getting  it  organized,  and  then,  if  subscribers  cannot  pay  the  sec- 
ond and  other  installments,  the  board  of  directors  will,  as  I  believe,  follow 
up  the  former  customs  of  this  State  on  similar  occasions,  by  discounting  the 
stockholders'  paper  in  some  way  or  other,  so  as  to  get  the  bank  in  opera- 
tion, when  discounts  will  be  granted  with  such  a  lavish  hand  as  to  till 
every  debtor's  pockets  with  their  notes.  The  sequel  of  the  fifth  year's 
operation  of  that  bank,  should  it  go  into  operation,  will  produce  a  state  of 
things  and  of  distress  that  none  of  its  friends  now  dream  of.  My  expe- 
rience in  the  former  local  banks  of  this  State  enables  me  to  foresee  the  con- 
sequences that  will  inevitably  result  from  the  operation  of  such  a  bank." 

The  Planters'  Bank  of  Tennessee  was  chartered  November  30,  1833, 
with  $2  millions  capital,  on  the  same  plan  as  the  Union  Bank;  and  the 
Farmers  and  Merchants'  Bank  of  Memphis,  November  27th;  capital 
$600,000,  on  the  same  plan. 

The  Superintendent  of  Public  Instruction  was  ordered,  February  19,  1836, 
to  wind  up  the  loans,  land  claims,  etc.,  of  the  Bank  of  the  State,  No.  II., 
investing  his  balances  in  stock  of  the  Planters'  Bank  for  the  interest  of  the 
school  fund;  but  he  is  also  ordered  to  redeem  the  notes  of  the  Bank  of  the 
State.     After  the  crisis  came  on,  October  9,  1837.  this  order  was  revoked. 

February  20,  1836,  the  Attorney-general  was  ordered  to  begin  suit  against 
the  Union  Bank  for  the  bonus  and  dividends.  The  State  had  borrowed  of 
the  bank.  Six  per  cent,  certificates  were  to  be  given  to  it  for  this  indebt- 
edness. In  a  report  of  that  bank  October  3,  1837,  it  is  said  that  the  bank 
has  changed  the  character  of  its  notes  and  will  no  longer  issue  any  but  notes 
payable  at  its  counter,  because  of  the  heavy  run  it  had  to  endure  in  the 
previous  spring  by  reason  of  its  notes  payable  at  New  Orleans. 

Kentucky. — The  Louisville  Bank  of  Kentucky  was  founded  February  2, 
1833;  for  twenty  years;  capital,  $2  millions;  lowest  note,  $5;  notes  dis- 

*  Documents  Appended  to  Polk's  Report,  1833,  p.  151. 


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counted  oy  it  placed  on  the  same  footing  as  foreign  bills  of  exciiange;  debts 
never  (o  exceed  twice  the  capital;  twelve  per  cent,  penalty  for  refusal  or 
unreasonable  delay  to  pay  notes  or  deposits  in  specie,  with  forfeiture  of 
charter;  may  begin  when  $200,000  paid  in  in  specie  and  $500,000  in  notes 
of  the  United  States  Bank;  the  State  to  have  an  option  for  five  years,  to 
take  any  part  of  5,000  shares,  and  to  have  no  other  right  than  other  stock- 
holdei.;;  the  bank  ni^t  to  lend  on  its  own  stock  or  on  real  estate. 

The  Bank  ol  Kentucky  was  incorporated,  with  its  scat  at  Louisville, 
Februaiy  22,  1834,  for  thirty  years;  cpital,  $5  millions;  not  more  than  six 
nor  less  than  four  branches;  lowest  note,  $■>;  twelve  per  cent,  penalty,  as  in 
the  case  of  the  Louisville  Bank;  the  State  to  take  20.000  shares  when  10,000 
shares  are  privately  subscribed;  the  State  to  appoint  three  out  of  eleven 
directors.  The  State  scrip  issued  for  the  State  subscription  might  be  sold  by 
the  bank,  which  became  liable,  by  endorsement,  for  the  interest  anywhere 
in  the  United  States;  but  the  State  paid  the  interest  into  the  b.ink.  The 
section  in  all  the  bank  charters  about  the  oblig.ition  of  the  banks  for  the 
interest  on  the  State  scrip  is  very  obscure.  An  act  of  March  3,  1842,  shows 
that  the  Northern  Bank  of  Kentucky  was  held  bound  to  pay  the  interest  on 
the  State  bonds  in  its  capital.  The  bank  was  to  redeem  this  scrip  out  of 
the  dividends  due  to  the  State,  paying  over  the  residue  to  the  State.  The 
bank  was  to  reserve  the  five  per  cent,  on  $1  million  of  scrip  out  of  the 
dividend,  and  the  surplus  was  to  go  to  pay,  as  far  as  possible,  for  the 
second  10,000  shares,  so  that  the  dividends  seemed  to  be  appropriated 
twice. 

The  Northern  Bank  of  Kentucky  was  incorporated  February  20,  1835,  for 
thirty  years;  capital,  $3  millions;  its  seat  at  Lexington,  with  not  less  than 
three  nor  more  than  four  branches;  the  State  to  take  half  the  capital;  the  State 
dividends,  over  and  above  the  charges  on  the  scrip  issued  for  its  stock,  were 
set  apart  for  the  interest  on  the  internal  improvement  loans.  Small  notes  were 
forbidden.  February  28,  1835,  after  one  year  from  that  date.  If  received, 
they  were  not  to  discharge  the  debt.  This  was  not  to  apply  to  the  notes  of 
the  old  Bank  ci  Kentucky  or  of  the  Bank  of  the  Commonwealth. 

In  1838,  a  very  earnest  attempt  was  made  to  get  a  charter  for  the  South- 
western Rail'oad  Bank  from  Kentucky.  Tiie  scheme  was  that  North  and 
South  Carolina,  Kentucky,  and  Tennessee  should  concurrently  charter  vhe 
Louisville,  Cincinnati  &:  Charleston  Railroad,  and  the  Southwestern  Railroad 
Bank.  Each  State  on  State  rights  principles  was  to  prescribe  the  action  of 
the  bank  within  its  limits.  The  bank  was  to  go  into  effect  if  three  Stales 
consented  to  it,  which  they  did;  Kentucky  alone  rejected  it.  It  passed  the 
Senate  by  one  majority  and  was  lost  in  the  House  by  a  tie  vote.  V/icklifi'e, 
who  wa:.,  charged  with  thi  effort  to  carry  the  measure  in  Kentucky,  explained 
that  the  Southwestern  R.iilroad  Bank  was  intended  to  negotiate  the  stock  of 
the  railroad  in  London  and  elsewhere.  Two  shares  in  the  road  go  with  one 
in  the  bank,  so  tha*  the  State  or  individual  stockholder  will  receive  through 
the  bink  a  cpft-.ln  and  immediate  profit  on  one-third  of  the  capital  invested, 


rt: 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


355 


of 


and  a  remote  profit  on  the  two-thirds  which  is  to  bo  laid  out  in  constructing 
the  road.* 

The  Southern  Bank  of  Kentucky  was  chartered  February  20,  1839,  to 
accommodate  the  people  south  of  Green  River;  for  thirty  years;  capital, 
$2  millions;  half  by  the  State.  The  main  features  of  the  charter  were  like 
those  above. 

Governor  Letcher  of  Kentucky,  in  his  message  of  1840,  said:  "The  State 
derived  great  benelit  from  the  branches  of  the  late  Bank  of  the  United  States. 
They  furnished  the  people  with  a  sound  currency,  good  at  home  and  good 
abroad,  and  afforded  every  necessary  facility  to  the  commerce,  business,  and 
enterprise  of  the  community.  When  it  was  unfortunately  decreed  that  the 
United  States  Bank  was  to  expire  without  a  renewal  of  its  charter  and 
without  a  substitute,  Kentucky,  being  compelled  by  necessity,  went  slowly 
and  hesitatingly  into  the  creation  of  local  banks,  "f 

Ohio. — In  1893  and  1834,  bank  charters  were  multiplied  in  Ohio. 
February  12,  1834,  the  Ohio  Life  and  Trust  Company  was  chartered  with 
$2  millions  capital;  permission  to  issue  notes  until  1843,  for  not  more  than 
twice  the  amount  of  deposits  allowed  to  remain  for  not  less  than  a  year,  and 
for  not  more  than  half  the  paid-up  capital  invested  in  loans  on  real  estate; 
the  charter  to  be  forfeited  if  it  should  suspend  for  more  than  thirty  days. 

At  the  session  of  183S-6  no  banks  were  chartered. 

The  Auditor  was  directed,  March  14,  1836,  to  draw  on  the  banks  for  20 
per  ;ent.  of  their  dividends  as  a  tax:  but  if  any  bank  should  give  notice  to 
the  '\uditor,  before  July  4th,  that  it  renounced  the  right  to  issue  notes  under 
§3  ;  fter  that  date,  and  those  under  $=;  after  July  4,  1837,  f^^^-  t'"^  on  such 
bank  should  be  only  five  per  cent,  of  its  dividends.  Most  of  the  banks 
accepted  this  law. 

A  great  bank  was  set  up  by  the  Mormons,  in  1856,  at  Kirtiand,  Ohio. 
No  property  was  bounc*  for  the  issue,  which  was  very  large,  it  had  no  coin 
and  noboiy  was  responsible  for  the  notes.  Before  the  word  "bank,"  in  big 
letters  was  the  word  "  anti-"  in  small  letters,  and  after  "bank,"  "ing"  in 
small  letters.  A  Pittsburgh  Danker  sent  some  notes  to  the  bank  for 
redemption.  Sydne/  Rigdon,  the  president,  replied  that  he  had  issued  those 
notes  to  circulate  i'or  !he  convenience  of  the  people;  to  redeem  them  would 
defeat  the  purpose.  The  bank  stopped  payment  February  11,  1837,  having 
$40,000  )utstanding.     This  compelled  the  Mormons  to  leave  that  neighbor- 

hood4 

Indiana  was  without  a  bank  from  1820  to  1834.  January  2Sth  of  the 
latter  year,  a  Bank  of  the  State  with  ten  branches  was  incorporated,  to  last 
until  1859;  ten  districts  were  to  be  formed  with  one  branch  m  each;  two 
more  might  later  be  added.  The  office  of  the  bank  was  to  be  in  Indianapolis, 
where  the  directors  were  to  meet  at  least  once  in  three  months.     Tiiey  were 


♦See  page  JV).  t  S«r  page  187. 

J  Stenhoiise ;  Rock  Mountain  Saints ;  Boston  " Courier,"  February  b,  10,7  ;  Ford ;  Illinois,  250. 


i      V- 


256 


A  HISTORY  OF  BANKING. 


mc 


("■fi 


.rf 


a  Board  of  Managers  only  for  the  affiliated  institutions  wiiich  constituted  the 
Bank  of  the  State.  They  had  no  institution  doing  business  under  their 
immediate  management.  The  branch  at  Indianapolis  was  subject  to  them 
only  in  the  same  way  in  which  other  branches  were.  The  bank  was  never 
to  suspend  under  twelve  per  cent,  penalty;  all  the  branches  were  responsible 
for  each  other;  suits  were  to  be  against  the  State  Bank;  no  stay  of  execution 
on  judgments  against  it;  it  might  receive  federal  deposits;  lowest  denon;i- 
nation  §=j,  and^  the  Legislature  might  forbid  notes  for  $10;  the  Legislature  to 
elect  a  president  for  five  years,  and  four  directors,  all  removable  by  joint 
resolution;  each  branch  to  elect  annually  one  member  of  the  Central  Board; 
the  Central  Board  to  control  the  branches,  examine  and  inspect  them,  and 
distribute  the  capital,  if  any  branch  becomes  insolvent  or  disobedient  or 
acts  against  the  interest  of  the  whole  or  of  the  State,  the  Central  Board  may 
appoint  a  receiver  for  it.  All  branches  must  make  up  a  deficiency  in  liquid- 
ating any  one.  The  Central  Board  to  have  charge  of  plates  and  paper;  the 
stockholders  of  the  branches  to  elect  seven  directors  and  the  Central  Board 
to  appoint  three  for  each  branch.  The  capital  was  to  be  $1.6  millions,  on*, 
half  by  the  State;  the  first  installment  to  be  paid  in  specie;  the  other  two  at 
intervals  of  a  year  each;  each  resident  stockholder  had  the  right  to  iiave 
these  installments  paid  for  him  by  the  State  of  Indiana,  in  specie,  on  giving 
security  to  pay  it  within  nineteen  years,  M'ith  interest  at  six  per  cent.,  con- 
sisting of  a  mortgage  on  land  of  double  the  value.  The  dividends  on  the 
stock  thus  paid  for  by  the  State,  on  behalf  of  the  stockholders,  were  to  go  to 
the  State  in  payment  of  the  interest;  but  if  the  dividends  left  a  deficiency, 
the  stockholder  must  pay  it.  No  loans  were  to  be  made  out  of  the  bank  to 
pay  the  subscription.  A  State  loan  of  $1.3  millions  was  provided  for  to 
carry  out  this  act,  and  the  dividends  of  the  bank  and  the  interest  on  the  loans 
to  the  stockholders  were  constituted  a  sinking  fund.  The  banking  powers 
were  to  cease  in  1857,  and  the  State  might  then  found  a  new  bank. 

If  a  stockholder  in  this  bank  subscribed  100  shares  ($5,000),  he  paid 
$1,875  money,  and  the  State  paid  for  him  the  remainder,  he  giving  a  mort- 
gage at  six  per  cent.  The  State  got  the  money  at  five  per  cent,  in  London. 
As  liie  dividend  exceeded  six  per  cent.,  the  dibt  was  extinguished  in  a  few 

years.* 

It  appears  that  the  banks  could  not  be  established  in  all  the  districts  as 
planned,  for,  in  1836,  they  were  abolished  where  no  bank  had  been  estab- 
lished, although  the  thirteenth  branch  was  then  constituted. 

Illinois. — February  12,  1835,  a  Bank  of  the  State  of  Illinois  was  created, 
to  last  until  1S60;  $1.5  millions  capital;  the  State  to  take  $100,000.  The  bill 
passed  the  House  by  a  majority  of  i.  On  the  same  day  the  charter  of  the 
Bank  of  Illinois,  of  1816,  was  extended  for  twenty  years.  State  Bank  was  a 
name  of  ill  omen  in  Illinois,  and  there  was  great  prejudice  against  it,  but 
the  rising  tide  of  land  speculation  and  the  mania  for  internal  improvements, 

*  McCulloch  ;  Men  anJ  iMeasures,  1 14. 


\ 


THE  MULTIPLICATION  OF  LOCAL  BANKS. 


2','J 


which  was  connected  with  it,  led  to  the  creation  of  these  banks.  It  was 
easy  at  the  time  to  obtain  subscriptions  in  the  East  for  bank  stock  in  these 
distant  States. 

The  reader  may  ask:  What  could  a  bank  be  expected  to  do  for  public 
improvements?  It  might  be  compelled  to  pay  a  bonus  which  could  be 
appropriated  to  public  works.  That  would  be  a  mulct  or  loss  once  for  all. 
If  bonds  were  to  ba  sold,  it  might  act  as  tinancial  agent  to  market  them.  If 
it  bought  them  itself,  it  would  lock  up  its  capital  and  become  a  canal  or 
railroad  company,  not  a  bank.  It  might  make  temporary  advances  before 
stocks  were  sold  or  taxes  collected;  but  if  the  bank  was  to  stay  sound,  these 
must  run  but  a  short  time  and  payment  must  be  strictly  secured,  if  banks 
were  used  otherwise  than  in  these  limits,  they  and  the  improvements  must 
all  fail  together.  This  is  what  happened.  The  Bank  of  the  State  engaged 
at  once  in  a  supply  of  capital  for  speculative  operations  at  Alton.  Ford  thinks 
that  it  must  have  lost  $i  million  and  was  nearly  insolvent  before  the  end  of 
the  second  year  of  its  existence.  It  was  regarded  as  a  whig  bank  and  could 
not  get  a  share  in  the  public  deposits. 

The  R.mk  of  Illinois  was  authorized  February  28,  1837,  to  borrow 
$250,000  .ind  lend  it  en  inortgages,  having  not  more  than  five  years  to  run, 
■t  not  more  than  ten  per  cent.  March  2d,  the  Governor  was  ordered  to 
subscribe  $100,000  to  the  stock   »f  that  bank,  on  behalf  of  the  State. 

The  internal  improvement  system  had  been  undertaken  on  a  most 
extrag.iv'ant  scale  in  1836.  March  4,  1837,  an  act  wa'^,  passed  to  increase  the 
capitii!  stock  of  certain  banks  and  to  provide  means  to  pay  the  interest  on 
the  loan  authorized  by  the  act  to  establish  internal  improvements.  The 
capital  of  the  Bank  of  the  State  was  to  be  increased  $2  millions,  and  that  of 
the  Bank  of  Illinois,  $1.4  millions,  if  they  consent.  The  State  was  to  contract 
a  loan  of  $3  millions,  at  six  per  cent.,  payable  in  i8bo,  with  which  to  take 
all  the  increase  in  the  capital  of  the  Bank  of  the  State,  and  $1  million  of  the 
increase  in  the  capital  of  the  Bank  of  Illinois;  $400,000  of  the  latter  were  to 
be  left  for  private  subscription;  the  dividends  on  the  State  stock  n  the  banks 
were  to  be  applied  first  to  pay  the  interest  on  the  loan  here  provided  for,  and 
the  remainder  to  pay  interest  on  the  internal  improvement  loan.  The  money 
obtained  on  loans  was  to  be  deposited  in  the  banks,  at  interest,  until  used. 

It  was  believed  that  the  State  bonds  would  sell  for  1 10  and  that  the 
dividends  on  the  bank  stock  would  pav  the  interest  and  sinking  fund  on 
them.     It  was  not  possible  to  sell  them  a;  100.     The  banks  took  them.* 


'h-  IH 


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*  Ford,  190 


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'If 


;.   .        I-  ; 


CHAPTER  XIII.— Continued. 


§3. — Tlw  liifhition  of  18 ■^'y  and  1836. 

After  the  commercial  crisis  of  1837  broke  out,  a  great  deal  of  writing  and 
talking  was  done  in  this  country  in  respect  to  banking  and  currency.  The 
disputants  all  traced  the  trouble  to  either  one  or  other  of  the  acts  of  Jackson's 
administration;  or  of  the  opposition;  or  of  the  United  States  Bank;  or  to  the 
lack  of  a  United  States  Bank.  Of  course  party  spirit  and  the  desire  to  win 
party  advantages  had  a  very  '.irge  share  in  all  these  arguments.  It  is  very 
doubtful,  however,  ifanyor;.lI  of  these  events  and  proceedings  had  more 
than  a  contributory  share  in  producing  the  result.  One  of  the  most  impor- 
tant facts,  to  which  leading  influence  must  be  attributed,  is  the  great  and 
really  irrational  importance  which  was  attached  by  Europeans  to  the  extin- 
guishment of  the  debt  of  the  United  States,  and  their  exaggerated  willing- 
ness, on  that  account,  to  lend  their  capital  in  America.  There  was  no 
removal  of  the  deposits  in  England,  and  no  lack  of  a  national  bank  in  France. 
The  whole  civilized  world  shared  in  the  convulsion,  it  seems  to  have  been, 
when  properly  regaided,  a  revulsion  in  the  midst  of  a  great  expansion  of 
industrial  power,  which  expansion  produced  modifications  of  the  industrial 
organization  which  could  not  well  take  place  without  some  greater  or  lesser 
catastrophes. 

In  England,  after  182s,  the  factory  system,  which  had  been  growing  up 
for  fifty  years,  had  reached  a  stasfe  of  completeness.  There  was  a  definite 
extension  in  the  application  o\  power  and  machinery  to  the  textile  industries. 
After  1830  began  the  construction  of  railroads.  The  multiplication  of  joint 
stock  banks,  upon  which  the  whole  subsequent  mischief  was  charged  by  a 
great  many  English  writers,  was  incidental  to  this.  At  that  time  the  bank- 
ing system  of  England  was  carried  on  very  much  as  that  of  America  was. 
There  were  constant  expansions  and  contractions  of  the  circulation,  and  the 
writers  on  financial  subjects  directed  their  attention  to  these  fluctuations  as 
the  controlling  causes  of  the  phenomena  which  were  noticed.  There  was 
very  general  dissatisfaction  with  the  management  of  the  Bank  of  England,  and 


t 


il 


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THE  INFLA  TION  OF  iSj$  AND  i8j(). 


2S9 


was. 
Ind  the 
Ions  as 
Ire  was 
and 


il 


a  strong  conviction  was  felt  by  the  best  students  of  finance  that  the  rules  l->y 
which  it  was  governed  were  not  adequate  or  correct.  Accordingly,  when 
the  bank  charter  was  renewed,  in  iSi:;,  power  was  reserved  to  modify  it 
after  1S40.  The  general  principle  of  management  for  tlie  Bank,  as  it  was 
stated  to  the  Committee  of  1832,  by  Horsley  I'almer,  was,  when  the 
exchange  was  at  par,  "to  invest  and  retain  in  securities  bearing  interest  a 
given  proportion  of  t  le  deposits,  and  the  value  received  for  the  notes  in  cir- 
culation, the  remainder  being  held  in  coin  and  bullion."  Tiie  proportion 
was  two-thirds  securities  and  one-third  bullion,  hi  the  flood  of  pamphlets 
which  was  produced  in  the  discussion  of  the  following  years,  this  rule  was 
shown  to  be  nugatory.  Many  interesting  and  important  points  in  the  doc- 
trines of  banking  and  currency  were  developed  in  this  discussion,  and  the 
doctrines  were  established  upon  which  the  Bank  act  of  1844  was  con- 
structed. Among  the  most  important  of  these  doctrines  for  our  present 
purpose,  we  may  notice  the  following:  An  inflation  or  contraction  of  the 
currency  does  not  have  that  prompt  and  direct  effect  upon  prices  and  enter- 
prise which  they  are  popularly  supposed  to  have.  We  may  turn,  there- 
fore, with  greater  confidence  to  the  great  extension  of  production,  and  the 
great  changes  in  the  industrial  organization  as  real  causes. 

The  increased  power  in  production,  with  the  attendant  movements  of 
commerce,  stimulated  enterprise,  or  as  it  is  commonly  called,  speculation. 
This  new  impulse  was  felt  in  every  direction.  It  constituted  a  great  demand 
for  capital,  and  it  went  on  inevitably  to  produce  aberrations  and  extrava- 
gances. It  also  produced  a  new  demand  for  raw  materials,  which  in  the 
next  stage  took  the  shape  of  new  enterprises  in  opening  land  and  mines. 

The  most  important  of  all  these  effects  for  the  United  States  was  a  new 
demand  for  cotton.  Cotton  was  at  that  time  the  commanding  artii  le  in  the 
foreign  trade  of  the  United  States.  In  value  it  constituted  from  35  to  517  per 
cent,  of  the  exports  of  the  United  States,  and  therefore  might  be  regarded 
as  the  chief  thing  with  which  we  paid  for  our  imports.  It  was  a  natural 
monopoly.  Its  value  rose  steadily  in  spite  of  a  very  rapid  increase  in  pro- 
duction. Inasmuch  as  the  facts  in  this  connection  will  demand  our  atten- 
tion frequently  as  we  pursue  the  history  ol  this  period,  the  following 
statistics  of  the  production,  in  million  pounds,  and  of  the  annual  average 
price,  in  cents,  will  be  found  useful  for  reference.* 


Year. 

Crop. 

Price. 

Vcar. 

Crop 

Price. 

1820 

160 

million 

pounds. 

>7 

1837-8 

720 

million 

pounds. 

14 

1 8  ?o- 1 

ISO 

9 

1838-9 

54=- 

'• 

10 

1833-4 

44s 

II 

1839-40 

870 

it 

14 

18^-5 

460 

12 

I 840- I 

654 

<< 

8 

i8^S-6 

5  so 

16 

1841-2 

673 

(( 

10 

1836-7 

570 

16 

18.12-3 

942 

(( 

8 

♦McHenry;  The  Cotton  Trade,  107. 


■■  I  \l : 


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if 


26o 


A  HISTORY  OF  BANKING. 


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*  h'i   ••!     Ji! 


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This  rise  in  value  of  the  leading  staple  product  of  the  country  had  the  most 
important  effects  politically  as  well  as  industrially  and  financially.  It  poured  a 
stream  of  wealth  into  the  cotton  States.  New  cotton  lands  were  opened 
and  cultivated.  Slaves,  tools,  machinery,  and  all  supplies  were  in  great 
demand,  and  for  the  most  part,  all  had  to  be  bought  upon  credit.  Of 
course  the  rate  of  interest  was  very  high,  for  there  was  no  free  capital  in  the 
cotton  States.  The  next  consequence  was  a  multiplication  of  banks,  either 
as  institutions  for  drawing  the  capital  from  elsewhere,  or  as  paper-money 
machines  under  the  constant  delusion  which  attends  such  circumstances. 
The  great  commercial  and  financial  centers  of  the  South,  New  Orleans, 
Mobile,  Savannah,  and  Charleston,  enjoyed  a  period  of  unprecedented  pros- 
perity. 

The  effect  of  the  arbitrary  redistributions  of  currency  and  capital  which 
went  on  from  1833  to  1837  were  to  throw  the  domestic  exchanges  into  the 
utmost  confusion.  "Even  the  monstrous  anomaly  was  presented  of  bills 
being  sold  at  a  loss  in  Philadelphia  upon  New  Orleans  while  at  New  Orleans 
bills  on  Philadelphia  were  also  sold  at  a  loss."  The  rates  of  exchange  were 
doubled  and  the  banks  made  great  profits.  This  was  what  drew  such  large 
amounts  of  northern  and  eastern  capital  into  the  banks  of  the  Southwest.* 

The  Erie  canal  had  proved  a  relative  success,  and  had  certainly  been  very 
useful  in  opening  up  access  to  the  western  country.  It  was  imitated  first  in 
Pennsylvania,  then  in  Maryland,  and  later  in  Ohio,  Indiana,  and  Illinois. 
The  southern  and  southwestern  States  also  adopted  plans  of  internal  improve- 
ment. For  all  these  things  capital  was  necessary,  and  capital  was  just  what 
was  wanting.  State  bonds  were  issued  in  order  to  obtain  this  capital  in  the 
East  and  in  Europe.  They  met  with  a  sale  which  was  amazing,  considering 
the  basis  on  which  they  rested.  As  long  as  this  lasted  there  was  great 
apparent  prosperity  in  all  the  improvement  States.  Wages  were  raised  to 
such  an  extent  that  labor  was  drawn  away  from  the  cultivation  of  the  land. 
Thehistorianoflllinoissays  that  in  1837  nothing  was  exported  from  that  State; 
everything  from  abroad  was  paid  for  by  the  borrowed  money  expended  in 
the  State,  t 

The  residents  of  the  cities  shared  in  this  prosperity  through  the  operations 
of  commerce  and  finance,  and  the  distribution  of  the  new  capital  to  the 
manufacturing  industries.  The  valuation  of  real  estate  advanced  in  all  the 
cities  with  great  rapidity.  The  valuation  of  real  and  personal  estate  in  New 
York  city  and  county  was,  in  1830,  $125  millions;  in  1836,  it  was  $309 
millions.     It  did  not  reach  $300  millions  ^jiin  until  1851. 

The  people  of  the  western  improvement  States  had  become  convinced 
that  without  any  taxation  or  other  annoyance  to  themselves  they  were 
about  to  see  the  land  around  them  very  greatly  increased  in  value;  and  every 
one  was  eager  to  get  possession  of  as  much  of  it  as  he  could  possibly 
acquire.     In  '836,  owing  to  the  great  land  and  town  lot  speculation  which 


*  1  Raguet's  Registei,  66. 


Ford's  Illinois,  196. 


I'll' IV 


mi  ' 

V    . 


\ 


THE  INFLATION  OF  i8j5  AND  iS^b. 


20 1 


had  then  reached  Illinois,  it  was  supposed  that  all  the  towns  of  any  note 
would  soon  become  cities,  and  that  other  uninhabited  towns,  laid  out  only 
for  speculation,  would  immediately  become  thriving,  populous  and  wealthy, 
and  the  town-lot  market  would  be  established.  "Chicago  had  been  for 
some  time  only  one  great  market  town  "  for  town  lots.*  The  eastern  people, 
however,  were  likewise  led  to  adopt  this  notion  of  the  prospective  value  of 
the  new  land.  The  sales  of  public  land  had  been  from  $2  millions  to  $3 
millions  a  year.  In  iSj?i  they  rose  to  $4.0;  millions;  in  1834,  $6  millions;  in 
1S35,  $15.9  millions;  in  1836,  $25.1  millions.  They  fell,  in  1837,  to  $7  mil- 
lions; in  1838,  $4.3  millions;  1839,  $6.4  millions;  and  1840,  $2.7  millions. 
These  sales  were  made  in  1835  and  1836  for  the  notes  of  the  banks  of  the 
western  States. 

In  the  President's  message  of  1836  the  operation  was  described  as  fol- 
lows: "The  banks  loaned  out  their  notes  to  speculators,  they  were  paid  to 
the  receivers,  and  immediately  returned  to  the  banks  to  be  lent  out  again 
and  again,  being  mere  instruments  to  transfer  to  speculators  the  most  valu- 
able public  lands,  and  pay  the  government  by  a  credit  on  the  books  of  the 
banks.  Those  credits  on  the  books  of  some  of  the  western  banks,  usually 
called  deposits,  were  greatly  beyond  their  immediate  means  of  payment, 
and  were  rapidly  increasing.  Indeed  each  speculation  furnished  means  for 
another;  for,  no  sooner  had  one  individual  or  company  paid  in  the  notes, 
than  they  were  immediately  lent  to  another  for  a  like  purpose,  and  the  banks 
were  extending  their  business  and  their  issues  so  largely  as  to  alarm  consid- 
erate men,  and  rendered  it  doubtful  whether  these  bank  credits,  if  permitted 
to  accumulate,  would  ultimately  be  of  the  least  value  to  the  government." 

On  the  I  ith  of  July,  1836,  the  Secretary  of  the  Treasury  issued  an  order, 
afterwards  known  as  the  "Specie  Circular,"  in  the  name  of  the  President, 
ordering  the  receivers  to  accept  nothing  in  payment  of  public  lands  but  gold 
and  silver,  or,  in  proper  cases,  Virginia  scrip.  The  chief  motive  was  declared 
to  be  "  to  discourage  the  ruinous  extension  of  bank  issues  and  bank  credit." 
This  order  was  denounced  by  all  those  who  were  interested  in  the  prevailing 
inflation  and  by  all  the  believers  in  the  "credit  system." 

it  is  well  worthy  of  notice  that  the  whole  of  the  great  surplus  which  was 
at  this  time  piled  up  in  the  treasury,  that  is,  in  the  deposit  banks,  could  be 
accounted  for  by  the  increased  revenue  from  the  salt;  of  public  lands.  The 
outcry  aq;ainst  the  circular  was  so  great  that,  in  spite  of  the  great  adminis- 
tiation  majority,  a  bill  was  passed  to  supersede  it.  In  form  't  specified  what 
currency  might  be  received  fo-  payments  to  the  United  States,  but  it  included 
bank  notes,  provided  that  they  were  payable  and  paid  in  specie,  and  that 
the  banks  whose  notes  were  taken  issued  no  notes  under  five,  later  under 
ten,  and  later  still  under  twenty  dollars.  These  restrictions  were  idle 
because  every  one  of  the  banks  in  question  satisfied  them,  and  they  furnished 
no  guarantee   against  the   evils   complained   of.      Jackson    filed    this  bill 

*  Ford,  181. 


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unsigned,  in  the  Secretary  of  State's  office,  at  eleven  and  three-quarters  p.  m., 
March  },  1837.  As  he  had  not  had  it  ten  days  it  was  not  a  law.  A  similar 
circular  had  heen  issued  in  1828;  as  there  was  then  no  active  speculation, 
very  little  notice  was  taken  of  it.* 

in  April,  183s,  a  treasury  circular  forbade  the  payment  out  of  the  treasury 
of  any  notes  under  five  dolLirs  after  September  30,  183s.  February  22, 
1836,  another  circular  forbade  the  payment  of  any  notes  out  of  the  treasury 
of  a  less  denomination  than  ten  dollars  after  May  1st.  Congress  superseded 
these  circulars  by  an  act  of  April  14,  1836,  that  no  bank  note  under  ten  dol- 
lars should  be  paid  out  after  that  date,  and  that  after  March  3,  1837.  no  note 
under  twenty  dollars  should  be  either  given  or  taken  by  the  United  States 
Treasury  or  Post  Office  Department,  and  all  notes  given  or  taken  must  be 
payable  in  specie  on  the  spot.  This  act  was  passed  without  a  contest  and 
with  great  unanimity.  In  1835,  the  following  States  allowed  no  notes 
under  five  dollars :  Pennsylvania,  Maryland,  Virginia,  Georgia,  Tennessee, 
Louisiana,  North  Carolina,  Indiana,  Kentucky,  Maine,  New  York,  New 
Jersey,  and  Alabama.  Connecticut  had  none  under  three  dollars.  In  Missis- 
sippi and  Illinois,  "it  is  understood  that  bills  under  five  dollars  have  not 
recently  been  issued."  Missouri  had  no  bank  of  issue.  The  specie  in  the 
country  was  estimated  at  sixty-four  millions. f 

From  the  time  that  the  State  banks  began  to  be  used  as  the  deposit- 
ories of  the  public  money,  the  amount  which  they  held  went  on  steadily 
increasing.  On  the  ist  of  June,  1836,  there  were  about  eighty  of  these  banks, 
with  a  capital  of  $46.4  milliens.  They  held  public  money  to  the  amount  of 
$41  millions.  Their  loans  were  $71.2  millions,  and  domestic  exchange, 
$37  I  millions.  Their  circulation  was  S27.9  millions,  their  private  deposits 
$16  millions,  and  their  specie  $10.4  millions. 

Jackson  had  himself  proposed  in  his  first  message  that,  after  the  public  debt 
was  paid,  the  surplus  revenue  of  the  federal  government  should  be  distributed 
to  the  States.  Clay  and  Calhoun,  however,  took  up  this  project,  the  former 
especially  aiming  to  distribute  the  proceeds  of  the  public  lands  as  such,  or  to 
regard  the  surplus  revenue  as  due  to  the  sales  of  lands.  At  the  session  of 
1835-36,  Clay  introduced  a  bill  to  distribute  the  net  proceeds  of  the  lands  after 
taking  out  ten  per  cent,  for  the  ten  new  States.  Calhoun  had  constitutional 
scruples  about  distribution,  and  proposed  an  amendment  to  the  Constitution 
to  authorize  it.  He  also  introduced  a  bill  to  regulate  the  public  deposits, 
and  there  was  another  bill  for  distributing  the  surplus  revenue.  The  land 
bill  passed  the  Senate  but  was  tabled  in  the  House.  The  distribution  bill 
and  the  deposit  bill  were  consolidated  into  one,  and  passed  by  the  Senate, 
June  17th,  38  to  6.  On  the  20th  of  June,  in  the  House,  an  effort  was  made 
to  divide  the  bill  so  as  to  separate  the  regulation  of  the  deposits  from  the 
distribution,  but  the  effort  failed.  As  the  bill  then  stood,  the  surplus  was  to 
be  divided  as  a  gift  to  the  States.     This  could  not  pass  the  House.     It  was 


♦  7  Adams's  Diary,  4J7. 


t  Treasury  Report,  1835. 


mi  { 


THE  INFLATION  OF  i8j5  AND  iSj6. 


263 


changed  into  a  plan  for  "depositing"  it  with  them,  subject  to  recall.  In 
this  shape  the  bill  passed,  i=;s  to  3S.  It  provided,  at  the  same  time,  for  the 
regulation  of  the  deposit  banks,  for  which  up  to  this  time  there  had  been  no 
law,  in  respect  to  the  reception  and  use  of  the  public  money  in  the  future, 
and  also  for  the  distribution  of  the  great  treasury  surplus  then  in  their  hands. 
There  was  to  be  in  each  State  a  deposit  bank,  if  a  bank  could  be  found 
which  would  fullill  the  prescribed  conditions.  Each  of  these  banks  was  to 
redeem  all  its  notes  in  specie  and  to  issue  no  notes  for  less  than  five  dollars 
after  July  4.  1836.  The  other  provisions  of  law  as  to  the  bank  notes 
receivable  and  payable,  which  already  existed,  were  repeated.  If  the  public 
deposits  in  any  bank  should  ever  exceed  one-fourth  of  the  capital  in  the 
bank,  it  was  to  pay  two  per  cent,  on  the  excess;  and  it  was  to  give  collateral 
security  for  the  deposit,  if  the  Secretary  called  for  it.  No  transfers  were  to 
be  made  from  bank  to  bank  by  the  Secretary,  except  as  the  convenience  of 
the  treasury  should  require,  and  then  he  was  to  transfer  from  one  deposit 
bank  to  the  next  nearest,  and  so  on.  This  was  intended  to  prevent  him 
from  redistributing  the  deposits  arbitrarily  or  by  favoritism,  and  it  revoked 
entirely  that  power  to  arbitrate  between  banks  which  the  Secretaries  had 
gradually  assumed  by  advancing  precedents  from  Hamilton  down.* 

All  the  surplus  money  in  the  treasury,  January  i,  1837,  over  $s  millions 
was  to  be  deposited  with  the  States,  in  the  proportion  of  their 
membership  in  the  electoral  college,  in  four  installments, — ^January,  April, 
July,  and  October,  1837.  The  States  were  to  give  for  these  deposits 
negotiable  certificates  of  deposit,  payable  to  the  Secretary  or  his  assigns,  on 
demand.  If  the  Secretary  should  negotiate  any  certificate,  it  was  to  bear 
five  per  cent,  interest  from  the  date  of  assignment;  while  not  assigned,  the 
certificates  bop^  no  interest.  This  large  sum  of  money  must  therefore  be 
withdrawn  from  the  loans  in  which  the  banks  had  invested  it,  within  a  year, 
and  be  paid  over  to  the  States,  most  of  which  were  eager  to  get  and  use  it 
in  their  internal  improvements. 

One  of  the  earliest  forms  of  speculative  mania  was  that  in  lumber  h'.nds 
in  Maine.  This  culminated  in  1834.  The  center  of  it  was  at  Bangor,  and 
the  town  was  so  crowded  with  operators  that  scarcely  a  shed  could  be 
found  for  shelter,  t 

Some  warning  voices  were  raised  early  in  the  progress  of  the  system  of 
inflation.  For  instance,  in  the  spring  of  185s :  "  A  crisis  is  approaching  and 
is  near  at  hand,  to  which  the  panic  and  pressure  of  last  year  will  be  trifling 
in  comparison.  There  is  a  larger  sum  of  money,  or  rather  a  larger  amount 
of  credit,  loaiied  out  in  this  community,  at  the  present  time,  than  there  ever 
was  before.  Notwithstanding  this  extraordinary  inflation  of  the  currency 
the  banks  continue  to  discount  every  note  which  bears  the  semblance  of 
responsibility,  :ind  as  the  'Journal  of  Commerce'  observes,  'everything  is 
dear  but  money.'  "I     In  December,  183s,  the  money  market  at  Philadelphia 


l..,..Hr. 


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l\%\ 


*  See  pages  33,  35,  102. 


1  Mart:n;  Boston  Stock  Market,  ^o. 


t  New  York  "  Evening  Post "  in  ^3  Xiles.   16S. 


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A  HISTORY  OF  BANKING. 


was  very  stringent;  some  political  anxiety  with  reference  to  relations  with 
France  being  added  to  the  commercial  difficulties.  In  January  Bicknell 
quoted  the  rate  for  capital  two  per  cent,  per  month  and  advancing.  In  the 
spring  of  1836,  there  was  a  very  great  stringency  in  the  money  market  of 
the  North  and  East,  but  there  were  everywhere  great  signs  of  prosperity  and 
business  enthusiasm.*  Sterling  exchange  was  at  ids,  par  109.6.  At  the 
same  time  all  prices  were  greatly  inflated.  The  imports  were  extraordi- 
narily large  and  included  even  wheat  and  flour,  as  they  had  in  the  previous 
year.  The  crops  had,  indeed,  not  been  good,  but  the  whole  anomalous 
condition  of  things  rested  upon  the  fact  that  a  great  debt  was  being  con- 
tracted in  Europe,  which  depressed  the  exchange  and  protected  the  whok 
system  of  inflation  here.  Everywhere  there  was  a  scarcity  of  money,  and  a 
demand  for  more  banks  to  furnish  a  supply.  One  per  cent,  a  month  was 
not  considered  a  high  rate  in  any  of  the  great  cities.  In  April  the  best  com- 
mercial paper  was  quoted  at  New  York  at  30  per  cent,  to  40  per  cent,  per 
annum;  second  rate,  at  a-half  of  one  per  cent,  per  day.  "There  is  an 
awful  pressure  for  money  in  most  of  the  cities,  "f 

In  May,  the  "Globe"  called  on  the  deposit  banks  to  contract  loans, 
demand  bank  balances,  and  "check  the  raging  mania  for  wild  speculation 
and  over-trading."  Governor  Marcy,  of  New  York,  devoted  a  large  part  of 
his  message  to  this  subject.  "The  passion  for  speculation  prevails  to  an 
extent  heretofore  unknown,  not  only  among  capitalists,  but  among  mer- 
chants and  traders.  The  funds  of  these  capitalists  have  been  withdrawn  to 
some  extent  from  situations  in  which  they  afforded  accommodation  to  busi- 
ness men,  and  they  have  consequently  been  obliged  to  press  upon  the  banks 
to  supply  this  deficiency  in  their  means.  Merchants  and  others  have 
abstracted  from  their  business  a  portion  of  their  capitals,  and  devoted  it  to 
speculations  in  stocks  and  lands ;  and  have  then  resorted  to  the  banks  for 
increased  accommodations.  To  these  causes  1  ascribe  most  of  the  embarrass- 
ment now  felt  for  the  want  of  sufficient  bank  facilities  to  conduct  successfully 
our  ordinary  business  concerns.  The  proposed  remedy,  judging  from  the 
applications,  is  to  double  the  present  number  of  banks  and  nearly  to  treble 
the  amount  of  banking  capital.  Before  you  apply  this  remedy,  in  whole  or 
in  part,  you  ought  to  be  well  satisfied  that  it  will  remove  the  difficulty,  and 
that  the  use  of  it  will  not  leave  us  in  a  worse  condition  than  we  are  at 
present,  "t 

In  June,  after  the  distribution  law  was  passed,  the  money  market  oecame 
still  more  stringent,  because  the  better  banks  were  preparing  to  pay  the 
deposits  which  they  held.  The  Secretary  of  the  Treasury  had  been  directed 
to  "equalize"  the  distribution  of  the  deposits  between  the  States,  and  he 
tried  to  carry  out  this  delicate  and  difficult  task,  ci.  'necting  it  at  the  same 
time  with  an  anticipation  of  the  distribution  which  was  to  be  made  in  the 
following  year.     The  law  was  extremely  crude,  and  seemed  to  proceed  from 


*  50  Niles,  113. 


t  50  Niles,  185,  114- 


X  2  Hammond,  450. 


) 


THE  INFLATION  OF  18J5  AND  i8j6. 


a6^ 


a  notion  that  the  "  redistribution  "  was  as  simple  an  operation  is  carrying 
bags  of  money  from  one  room  to  another.  A  supplementary  act  was  neces 
sary  to  put  the  enterprise  in  any  practicable  shape.  In  the  report  of  the 
Secretary  for  1836  he  showed  how  the  undertaking  had  caused  him  to  be 
Importuned  by  Congressmen  seeking  favors  for  their  States  or  their  banks. 
He  had  redistributed  about  $40  millions,  withdrawing  $18  millions  from  the 
States  in  which  the  banks  had  more  than  their  proportionate  share.  In  the 
last  six  months  of  1836,  $22  millions  more  had  been  paid  in.  chietly  where 
there  was  an  excess  before,  and  this  also  had  been  redistributed.  Biddle,  in 
a  public  letter  to  Adams,  November  11,  criticized  mercilessly  these  proceed- 
ings. Indeed  we  find  it  very  difficult  to  understand  what  was  done.  The 
surpluses  were  in  the  great  cities  of  the  East.  The  deficiencies  (according 
to  the  way  of  looking  at  the  matter)  were  west  of  the  Alleghanies.  But,  if 
it  was  proposed  to  transfer  any  money  from  the  former  to  the  latter,  the 
latter  would  at  once  say :  We  do  not  want  money  sent  to  us  from  there.  If 
we  had  any  money  to  spare  we  would  send  it  there.  Give  us  rather  eastern 
exchange. — This  was  the  point  of  Biddle's  criticism,  and  no  one  was  in  a 
better  position  than  he  to  understand  the  ignorant  blundering  of  the  process 
which  was  going  on.  His  mind  at  once  ran  over  those  refined  and  skillful 
operations  by  which  he  would  have  made  such  a  redistribution  if  he  had 
been  called  on  to  do  it.  Even  in  September.  1836,  the  local  currency  at  New 
Orleans  was  depreciated  and  the  banks  had  to  unite  to  import  specie.* 

In  the  six  months  before  the  suspension  of  1837,  although  the  amount  of 
the  currency  was  greater  than  it  had  ever  been  before  in  the  United  States, 
yet  the  scarcity  of  money  was  so  great  that  it  commanded  from  one  per  cent, 
to  three  per  cent,  per  month. f 


'f. 


*'  t    I  ;, 


■  Treasury  Report,  January  8,  1838,  page  65 1 . 


t  Raguet;  Currency  and  Banking,  139. 


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CHAPTER    XIV. 
The  Financial  Revulsion  ;  1837  to  1842. 


§  I,  i8jy.     The  Suspension  of  Specie  Payments.     The  United  States  Bank 

of  Pennsylvania  in  the  Crisis.    Its  Cotton  Operations. 

The  Federal  Treasury  in  the  Crisis. 

JHE  inflation  in  England  reached  a  crisis  in  the  course  of  1836. 
In  October,  there  was  a  run  on  most  of  the  Irish  banks,  which 
proved  fatal  a  month  latei  lO  the  Agricultural  Bank,  a  great 
joint-J-tock  association  established  about  two  years  before,  and 
having  about  thirty  branches.  The  Northern  and  Central  Bank 
of  Manchester  was  compelled  to  apply  to  the  Bank  of  England  for  assistance. 
It  was  only  about  two  years  old  and  had  forty  branches.  The  Bank  of 
England,  fearing  that  a  catastrophe  to  this  bank  might  occasion  a  panic  in 
Lancashire,  made  large  advances  to  it.*  In  the  advances  that  were  made 
to  the  discount  houses  to  rediscount  commercial  paper,  a  great  mass  cf 
bills  was  uncovered  which  had  been  produced  by  bill-kiting  between  six 
houses  in  London  and  one  in  Liverpool,  whereby  some  jCi<y  millions  or 
jCi6  millions  sterling  had  been  advanced  to  Americans  by  banks  whose 
total  means  were  not  one-sixth  of  that  amount.  The  paper  of  some  of 
these  banks  was  rejected  by  the  agency  of  the  Bank  of  England  at  Liverpool, 
and  three  of  them  failed  in  March,  1837.  On  account,  however,  of  the 
ramificatiotis  of  their  transactions,  the  Bank  of  England  was  obliged  to  carry 
them  until  their  affairs  could  be  liquidiited.  Their  names  were  Wilson, 
Wildes,  and  Wiggins,  and  they  became  famous  as  the  three  W's.  These 
banks  gave  open  credits  to  persons  who  went  out  to  all  parts  of  the  globe 
to  buy  products.  The  agent  of  the  bank  drew  a  bill,  the  proceeds  of  which 
were  to  be  invested  in  coffee,  sugar,  and  other  commodities,  which  were  to 

*  Edinburgh  Review,  1837 ;  attributed  to  McCuUoch. 


THE  FINANCIAL  REI^ULSION;  1837. 


2&J 


be  shipped  to  Europe  subject  to  the  order  of  the  banking  house  for  reim- 
bursement. Many  of  these  cargoes,  instead  of  being  sent  to  Europe,  were 
sent  to  the  United  States,  and  for  various  reasons  the  returns  upon  them 
were  delayed  or  were  lost.  The  amount  of  credits  which  these  houses  had 
extended  in  the  United  St.:*f  j  was  estimated,  toward  the  end  of  i8?6,  at 
;£'20  millions;  but  they  had  been  reduced  durinii  the  winter  to  the  sum 
above  named,  or,  as  other  authorities  stated,  to  about  /^\2  millions.  At 
the  same  time  the  best  authorities  estimated  the  amount  of  American  stocks 
held  in  England  at  about  jQ^o  millions  sterling.  There  was,  therefore,  in 
March  quite  a  well-defined  commercial  crisis  in  London.  The  policy  of  the 
Bank  of  England  in  sustaining  ihe  three  W's  was  much  disputed,  but  the 
"Edinburgh  Review"  said  that  if  the  bank  had  refused  to  take  their  paper, 
"bills  to  the  amount  of  from  ^^8  millions  to  ;^i2  millions  would  have 
instantly  ceased  to  be  negotiable,  and  it  is  all  but  certain  that  the  shock 
which  such  an  event  would  have  given  to  credit  would  have  produced  an 
extent  of  bankruptcy  and  ruin  to  be  paralleled  only  by  what  followed  the 
breaking  up  of  the  Mississippi  scheme  in  France." 

In  New  York,  in  January,  several  of  the  banks  refused  to  receive  on 
deposit  checks  on  other  banks.  In  the  same  month  the  Board  of  Trade  of 
New  York  memorialized  Congress  in  regard  to  the  deranged  state  of  the 
currency  and  exchanges,  and  asked  their  interposition  to  remedy  it.  They 
urged  that  another  national  bank  should  be  chartered,  particularly  for  the 
reason  that  it  could  regulate  the  local  banks.  "In  short,  such  an  establish- 
ment has  existed  and  is  familiar  to  the  habits  of  the  country,  and  your 
memorialists  desire  nothing  better  than  to  return  to  that  system  under  which 
the  commerce  and  currency  of  our  country  so  long  prospered."  It  was 
very  generally  agreed  on  all  sides  that  the  currency  was  excessive  and  in 
great  disorder. 

After  the  ist  of  January,  the  price  of  cotton  fell  four  or  five  cents  a  pound 
in  England,  and  during  many  months  of  the  year,  1837,  the  price  ranged 
four  cents  lower  than  in  1836.  This  was  a  fall  of  30  per  cent,  or  40  per 
cent.,  and  its  effect  upon  the  persons  who  had  taken  up  cotton  lands  on 
credit,  expecting  a  maintenance  of  the  old  price,  was  disastrous.  It  was 
not  strange,  therefore,  that  the  first  failures  occurred  at  New  Orleans.  They 
happened  on  the  4th  of  March,  so  that  Gen.  Jackson  left  to  his  successor  the 
task  of  reaping  all  the  harvest  which  he  had  sown  by  his  experiments  of  the 
last  eight  years.  The  first  failure  was  that  of  Hermann,  Briggs  &  Co., 
cotton  factors,  who  had  made  advances  to  the  cotton  planters  which  the 
crop  would  not  repay.  Their  correspondents,  J.  L.  and  S.  Josephs  &  Co.,  of 
New  York,  failed  as  soon  as  the  news  reached  New  York.  Six  months 
later,  however,  their  estate  was  said  to  show  surplus  assets  for  more  than 
half  a  million  of  dollars.* 

It  will  therefore  be  seen  thai  this  revulsion  came  upon  the  commercial 

•  N.  Y.  "Journal  of  Commerce,"  October  9,  1837. 


1' 


1.1 


i         i 


268 


A  HISTORY  Oh  BANKING. 


h 


1 

i, 
f 

ft 

I' 
%    ■ 

! 

I  ;  ; 


centers  of  this  country  from  two  sides  at  once.  The  expansion  in  England 
had  reached  its  limit  and  there  was  a  reaction  with  a  decline  in  demand  for 
cotton.  With  the  fall  in  the  price  of  cotton,  the  whole  cotton  producing 
region  was  prostrated  and  could  not  pay  for  the  supplies  it  had  drawn  from 
the  Northeast.  At  the  same  time  the  credit  which  had  been  enjoyed  in 
England  by  northern  merchants  and  bankers  was  lost  and  payment  was 
demanded.  This  overthrew  the  ' '  credit  system"  here,  and  everything  which 
depended  on  it.  The  latter  revulsion  fell  upon  the  commercial  and  financial 
centers  directly.  Some  writers  on  the  events  laid  stress  upon  one  of  these 
sets  of  circumstances;  others  on  the  other.* 

During  the  month  of  March  the  failures  followed  rapidly.  On  the  28th  a 
committee  of  New  York  bankers  turned  to  Biddle  for  help.  He  went  to 
New  York,  where  an  agreement  was  made  that  the  New  York  banks  should 
increase  their  discounts  $1.5  millions;  that  the  Bank  of  the  United  States 
should  issue  bonds  payable  in  London  for  $5  millions  and  send  specie  to  the 
amount  of  $1  million;  the  Manhattan  Company  was  to  issue  bonds,  half 
payable  here  and  half  in  London,  for  $2  millions;  the  Bank  of  America  was 
to  draw  on  Rothschild  for  $200,000  and  the  Girard  Bank  to  issue  bonds 
payable  in  London  for  $500,000  and  the  Morris  canal  for  $1  million. f  These 
bonds  were  sold  for  the  bills  receivable  of  the  merchants  at  1 12  and  a  half, 
and  were  sold  by  the  merchants  for  current  paper  at  109,  specie  being  at 
seven  per  cent,  premium.  Exchange  was  at  1 1 1  and  a  quarter  or  1 12.  The 
shares  of  the  Bank  were  at  119  or  120,  The  bonds  were  made  payable  at 
the  Barings.  Biddle  made  the  reservation  that  he  must  submit  the  expor- 
tation of  specie  to  his  Board  of  Directors. 

Issuing  bonds  under  such  circumstances  is  a  transaction  which  may  have 
very  different  phases  and  significance.  It  may  be  that  a  great  and  strong 
institution  puts  its  credit  in  the  place  of  that  of  a  solvent  debtor  who  can 
give  proper  security  to  the  Bank  near  at  hand  which  he  could  not  give  to  his 
creditor  at  a  distance.  Under  other  circumstances  a  weak  and  rotten  bank 
issues  post-notes  to  insolvent  debtors,  pretendedly  for  their  relief,  but  it  is 
really  making  use  of  their  distress  to  borrow  from  them,  or  to  borrow  else- 
where on  their  security,  thus  driving  them  down  to  lower  depths  of  bank- 
ruptcy. In  the  case  now  before  us  the  Bank  of  the  United  States  was 
supposed  to  be  acting  on  the  former  principle.  This  was  only  partly  true, 
and  in  the  next  two  years  that  Bank  gradually  went  over  to  the  second  use 
of  post-notes.  The  great  banks  of  the  Southwest  fully  illustrated  the  second 
use  of  these  instruments. 

The  Bank  held  a  great  amount  of  securities  which  were  not  immediately 
available  and  others  which  had  fallen  in  value.  It  did  not  want  to  sell  them. 
Hence,  while  borrowing  by  its  post-notes,  it  was  speculating  in  these 
securities.  Although  its  margin  on  the  bills  receivable  which  it  had  taken 
from  the  merchants  was  wide,  yet  it  reallj  took  a  risk  on  the  liquidation  of 


♦  S«*  Appleton;  Currency,  1841. 


tSiNiles,  81. 


THE  FINANCIAL  REPULSION;  1837. 


269 


the  debt  owed  by  Americans  in  England.  When  it  began  to  buy  cotton  it 
engaged  in  a  gigantic  speculation  in  that  staple,  embracing  the  whole  crop. 
These  hazards  all  went  against  it  more  or  less,  and  all  became  more  and  more 
complicated. 

In  April  the  bonds  of  the  Bank  of  the  United  States  were  selling  at  one 
per  cent,  per  month  discount,  and  those  of  the  Manhattan  Bank  at  one  and 
a-half  per  cent.  The  New  York  banks  would  not  discount  southern  and 
western  paper.  It  was  estimated  that  the  southerners  did  not  pay  over  five 
cents  on  the  dollar  of  what  they  owed.  From  the  failure  of  Josephs  to  April 
8th,  there  were  ninety-eight  failures  at  New  York,  with  liabilities  of  $60.5 
millions.  At  a  meeting  of  the  bankers  it  was  proposed  to  petition  the 
Legislature  for  permission  to  suspend,  but  Ihe  proposition  met  with  no  favor.* 

The  whole  cotton  region,  however,  seemed  to  be  prostrated.  A  corre- 
spondent wrote  from  Charleston:  "The  credit  system,  the  sure  foundation  of 
our  prosperity,  is  abandoned.  Four,  five,  six,  and  even  ten  per  cent,  a 
month  has  been  paid  by  those  requiring  funds  to  sustain  their  credit,  "f  The 
failure  of  the  bank  of  Yeatman,  Woods  &  Co.,  of  Nashville,  was  a  great 
calamity  to  that  region.  "Their  house  occupied  a  very  high  ground  in  the 
confidence  of  millions  of  people.  The  result  will  be  ruinous  in  Tennessee 
and  Kentucky  to  the  poor.  Their  notes  make  up  almost  one-third  of  the 
circulation  in  Tennessee. "J 

At  New  Orleans  all  but  four  or  five  of  the  principal  cotton  factors  had 
failed.  The  planters  depended  on  them  for  the  advances  by  which  they 
made  their  improvements  and  bought  their  supplies  in  anticipation  of  the 
crop.  A  correspondent,  in  April,  said:  "It  can  no  longer  be  concealed  that 
the  commercial  community  of  New  Orleans  is  altogether  in  a  complete  state 
of  bankruptcy  or  suspension.  *  *  *  One-fourth  of  our  bank  directors 
have  become  insolvent  or  suspended  payment,  there  being  now  but  four  or 
five  large  commission  establishments  left  as  the  pillars  of  the  once  prosperous 
commerce  of  this  city.  *  *  *  Including  the  responsibilities  of  the  cotton 
planters,  the  amount  may  be  $100  millions;  but  taking  into  consideration 
the  amount  due  on  land  or  real  estate  speculation,  the  actual  indebtedness  of 
New  Orleans  may  be  estimated  at  $180  millions.  "§  A  New  Orleans  news- 
paper declared  that  "the  monopoly  of  the  cotton  staple  has  fallen  by  its 
own  weight.  There  will  not  be  a  house  left  to  tell  the  tale."  It  expressed 
the  oft-repeated  but  as  yet  never-fulfilled  hope  that  the  rising  generation 
would  profit  by  the  lesson.  ||  At  the  same  time  a  Mobile  newspaper  said ; 
"There  is  a  little  trade  to  be  seen  going  on  here  and  there,  but  it  is  mournful 
even  to  look  upon  that,  as  it  leads  to  comparison.  Where  nine-tenths  of  the 
merchants  of  a  city,  which  until  recently  flourished  and  prospered  beyond  all 
others  of  its  population,  have  suspended  payment,  it  is  enough  to  despond 
the  stoutest  heart." 


*  ja  NUes,  97,  loo. 

{Ibid,  i}0. 


t  Ibid,  114. 


X  I  R<guet'>  Register,  76. 
I  Ibid,  161. 


%\: 


^    % 


I 


2^o 


A  HISTOR  Y  OF  BANKING. 


'  ?l 


At  a  meeting  in  that  city,  April  aad,  a  review  of  the  situation  was 
presented  in  which  occurred  the  following  passage :  "The  fact  of  the  indebt- 
edness of  the  State  having  been  adverted  to,  the  question  naturally  suggests 
Itself,  How  does  this  arise  ?  The  answer  is  plain  and  obvious.  Such  has 
been  the  productiveness  of  the  State  for  several  years  past,  and  so  large  the 
returns  of  slave  labor,  that  the  purcha^s  of  that  species  of  property  from 
other  States,  since  1818,  have,  it  is  believed,  not  fallen  short  of  $10  millions 
annually,  while  the  average  value  of  our  exports  has  probably  not 
exceeded  $16  millions;  thus  leaving  an  amount  for  other  expenditures 
entirely  inadequate  to  meet  them,  and  this  will  be  the  more  evident  when  it 
is  considered  how  large  an  amount  has  been  expended,  both  in  the  interior 
and  in  this  city,  in  making  improvements."* 

The  North  and  East  had  made  great  profits  by  selling  goods  to  these 
cotton  planters  on  long  credit.  When  the  revulsion  came  they  were  credit- 
ors for  large  advances  made  in  the  confidence  of  the  continued  prosperity  of 
the  planters.     All  sections  therefore  had  a  great  stake  in  the  market  for  cotton. 

After  the  movement  of  revulsion  began,  the  notes  issued  by  the  south- 
western banks  on  discounts  were  remitted  north  and  east  by  way  of  pay- 
ment, t  The  accumulation  of  them  there  becomes  a  feature  of  the  situation 
which  we  meet  with  in  its  consequences  again  and  again. 

In  the  New  York  Legislature  it  was  proposed,  in  April,  that  the  State 
should  lend  to  the  banks  $3.^  millions  five  per  cent,  bonds,  the  issue  of 
which  had  been  authorized  to  pay  for  canals.  The  banks  were  to  sell  them 
in  England  and  pay  the  State  in  such  installments  as  were  required  for  the 
canal  expenditures.  This  plan  was  not  actually  carried  out,  although  it  was 
adopted,  because  some  further  legislation  was  necessary  and  the  banks  sus- 
pended before  it  could  be  obtained.  J 

At  a  public  meeting  at  New  York,  April  25th,  resolutions  were  adopted 
declaring  that  the  trouble  was  due  to  presidential  meddling  with  business 
and  currency;  to  the  destruction  of  the  national  bank ;  to  the  attempt  to 
substitute  a  metallic  currency;  and  to  the  specie  circular.  A  committee  of 
fifty  was  appointed  to  go  to  Washington  and  ask  the  President  to  withdraw 
the  specie  circular.  Biddle,  being  in  Washington  at  this  time,  called  upon 
the  President  in  order  to  give  him  a  chance  to  talk  about  the  financial  situa- 
tion; but  Van  Buren  did  not  seize  the  opportunity.! 

Early  in  May  three  Buffalo  banks  were  enjoined  by  the  Bank  Commis- 
sioners, and  the  Comptroller  gave  notice  that  the  State  would  redeem  their 
notes.  Buffalo  had  suffered  very  much  the  year  before  by  the  failure  of 
Rathbone,  who  had  $1.5  millions  forged  paper  out.  May  3d,  the  loco  focos 
held  another  of  the  meetings  which  they  were  in  the  habit  of  holding  in  the 
park  at  New  York  Ci.y,  at  which  they  adopted  an  "Address  of  the  Pro- 
ducing Classes  of  the  City  of  New  York,  friendly  to  the  Policy  of  substitu- 


*  Ibid,  iij.  t  Report  of  the  Plintera'B«nk  of  Tenneocc,  Octobers,  1837. 

%  3  C.!<<tin's  V/ritingt,  396.  1 5>  NUcs,  146. 


U'  . 


THE  FINANCIAL  REyULSION;  1817. 


271 


ting  a  Specie  Currency  for  a  Promise  Currency,  to  tiie  People  of  the  United 
States."  This  meeting  encouraged  the  run  on  the  banks,  which  increased 
during  the  early  days  of  May. 

On  the  8th,  a  meeting  was  held  to  hear  the  report  of  the  committee 
which  had  been  sent  to  Washington.  They  had  read  to  the  President  an 
elaborate  statement  of  the  calamities  of  the  last  three  months,  and  had  stated 
to  him  their  opinion  that  it  was  all  due  to  the  removal  of  the  deposits  and 
the  specie  circular.  They  had  asked  him  to  call  an  extra  session  of  Con- 
gress; to  suspend  the  specie  circular;  and  to  defer  suits  on  duty  bonds.  He 
replied  that  he  would  inquire  into  the  possibility  of  deferring  the  suits;  that 
he  would  not  suspend  the  specie  circular;  and  that  he  could  not  call  Con- 
gress together  because  many  of  the  Representatives  were  not  elected.  The 
meeting,  upon  hearing  this  report,  passed  resolutions  reiterating  their  view 
of  the  political  mistakes  of  the  last  administration,  which  had  caused  the 
trouble.  Some  months  later  the  delegates  to  the  Bank  Convention  summed 
up  more  justly  the  causes  of  suspension,  leaving  out  the  chief  alleged  politi- 
cal causes:  "The  simultaneous  withdrawing  of  the  large  public  deposits, 
and  of  excessive  forei^jn  credits,  combined  with  the  great  and  unexpected 
fall  in  the  price  of  the  principle  articles  of  our  exports,  with  an  import  of 
corn  and  breadstuffs  such  as  had  never  before  occurred,  and  with  the  conse- 
quent inability  of  the  country,  particularly  of  the  southwestern  States,  to 
make  the  usual  and  expected  remittances,  did,  at  one  and  the  same  time, 
fall  principally  and  necessarily  on  the  greatest  commercial  emporium  of  the 
Union."* 

On  the  8th  of  May  the  Dry  Dock  Bank  failed.  On  the  loth,  the  New 
York  City  banks  all  suspended.  There  were  feai:-:  of  an  outbreak,  especially 
on  account  of  the  inflammatory  harangues  by  which  the  people  had  been 
excited  at  the  loco  foco  meetings.  These  harangues  had  consisted  of  denun- 
ciations of  the  banks,  which  were  only  too  well  deserved,  and  of  complaints 
about  the  bank  note  currency,  which  were  very  just ;  but  they  had  run  on 
also  into  anarchistic  doctrines  about  property  and  vested  rights.  Another 
subject  of  their  complaint,  which  was  by  no  means  without  foundation,  was 
the  failure  in  the  administration  of  justice  against  financial  crimes,  and  the 
weakness  of  the  law  and  the  courts  in  all  attempts  to  compel  the  banks  to 
deal  honestly  and  justly  with  the  public.  The  militia  were  under  arms  on 
the  day  that  the  suspension  took  place.f 

It  spite  of  all  that  had  happened  during  the  preceding  three  years,  it  is 
stated  on  the  best  authority  that  the  suspension  of  the  banks  had  not  been 
anticipated.  J  Under  the  safety  fund  act,  any  bank  which  refused  to  redeem 
its  notes  on  demand  was  to  be  enjoined  by  the  Chancellor,  put  in  the  hands 
of  a  receiver,  and  forfeit  its  charter.  The  Legislature  hastened  to  suspend 
this  law  for  a  year.     It  was  also  proposed  to  suspend  the  law  of  1835, 


*  I  Raguet'i  Register,  229. 


t  51  Niles,  16a. 


X  )  GilUtin's  Writings,  )9; ;  Raguet,  Currency  and  Banking,  188. 


1     mr. 


1 


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il 


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I 


u 


^ 


■I. 


1 

1 5'^ 

p  ^'f 

1    '■  1' 

) 

-• 

m 


a'ja 


A  HISTORY  OF  BANKING. 


which  prohibited  notes  under  five  dollars.  This  was  not  passed,  and  it  is 
said  that  this  is  the  reason  why  the  democrats  were  defeated  at  the  next 
State  election.*  There  were  at  this  time  ninety  safety  fund  banks,  with  a 
capital  of  $32.2  millions,  and  nine  chartered  banks  not  in  the  safety  fund, 
with  a  capital  of  $5. 1  millions.  Gallatin  says  that  the  suspension  law  was 
unnecessary  and  useless;  that  it  gave  the  banks  no  new  liberty,  and  was  not 
wanted  by  them. 

The  Philadelphia  banks  suspended  as  soon  as  they  heard  that  the  New 
York  banks  had  done  so.  They  declared  that  they  had  plenty  of  specie  for 
Philadelphia,  but  not  enough  for  the  "  Atlantic  seaboard."  They  said  that, 
as  the  balances  stood,  all  their  specie  would  have  been  drawn  away.  They 
agreed  to  pay  each  other  interest  on  daily  balances,  and  to  limit  the  amount 
which  one  might  owe  another,  under  penalty  of  handing  over  to  the  creditor 
the  choice  of  the  bills  receivable  of  the  debtor.f  As  fast  as  the  news  spread 
the  banks  with  very  few  exceptions  suspended,  from  one  end  of  the  country 
to  the  other.  The  Governors  were  generally  called  on  to  summon  extra 
sessions  of  the  Legislatures.  In  some  cases  they  did  so  and  in  others  they 
refused.  Governor  Ritner  of  Pennsylvania  published  a  proclamation  stating 
that  he  would  not  call  a  session  of  the  Legislature,  because  all  the  measures 
which  it  was  proposed  to  adopt  would  be  mischievous;  namely,  to  issue 
small  notes,  which  would  increase  the  circulation  instead  of  diminishing  it; 
to  prevent  the  forfeiture  of  the  charters,  which  would  relieve  the  banks  of 
the  necessity  to  resume,  and  would  set  them  free  to  enter  upon  inflation;  to 
enact  a  stay  law,  which  would  destroy  all  respect  for  law. 

The  banks  of  Natchez  and  Montgomery  suspended  some  days  before 
those  of  New  York,  and  those  of  Mobile  and  New  Orleans  at  about  the  same 
time,  but  without  knowledge  of  what  had  taken  place  in  the  North,  There 
was  just  at  this  time  an  extra  session  of  the  Legislature  of  Mississippi,  which 
was  diligently  at  work  manufacturing  bank  charters.!  '^  authorized  the 
suspension,  and  authorized  the  banks  to  issue  post-notes  for  a  year.  The 
Union  Bank  of  Florida  published  a  statement  in  the  newspapers.  May  10, 
1837,  before  the  suspension  at  the  North  was  known,  which  showed  that  it 
possessed  but  $76  in  foreign  bank  notes  with  which  to  pay  deposits  $108,694 
and  circulation  $254,941.     It  never  resumed  afterwards.§ 

If  the  utterances  of  bank  conventions,  bank  commissioners,  legislative 
committees,  etc.,  in  the  different  States  are  read  side  by  side,  they  are 
found  to  contain  almost  identical  expressions  to  the  effect  that  the  public  of 
"our"  State  is  to  be  congratulated  on  the  soundness  of  the  banks  in  it, 
while  the  general  suffering  is  attributed  to  the  folly  and  errors  of  neighbors; 
that  our  banks  have  plenty  of  specie  for  themselves,  but  that  they  cannot  be 
expected  to  provide  all  their  neighbors  with  specie ;  that  it  is  impossible  for 
any  to  maintain  specie  payments  unless  all  do. 


n 


*  a  Hammond,  470. 


t  I  Raguct's  Register,  115. 
(  Committee  on  Corporation!,  1841. 


t  See  page  aji. 


THE  FINANCIAL  REl^lIl.SION;  1817. 


373 


May  20,  Nilcs  said:  "There  are  still  a  few  banks  that  continue  to  pay 
specie  for  their  notes,  but  specie  is  nearly  banished  as  a  circulating  medium, 
and  its  place  is  filled  by  those  abominations  called  shinplasters,  which  are 
becoming  as  plentiful,  and  will  prove  as  troublesome  as  the  frogs  of 
Egypt."*  This  anticipation  was  only  too  completely  fulfilled  in  the  next 
three  years,  but  the  issuers  of  shinplasters  were  rather  individuals,  firms, 
and  municipal  corporationr,  than  banks. 

Immediately  after  this  suspension,  Biddle  published  another  letter  to 
Adams  to  explain  why  the  Bank  of  the  United  Slates  had  acted  with  the 
others.  He  said  that  the  other  banks  were  forced  to  suspend  because  the 
deposit  banks  had  done  so.  The  United  States  Bank  could  have  gone  on, 
but  comity  to  the  other  Pennsylvania  banks  dictated  that  the  people  of 
Pennsylvania  should  not  be  compelled  to  pay  in  different  money  from  that 
used  in  the  other  States. 

This  letter  was  another  of  Biddle's  meretricious  literary  productions. 
It  is  certain  that  suspension  was  no  more  welcome  to  anybody  than  it  was 
to  the  Bank  of  the  United  States,  and  it  was  extremely  satisfactory  to  be 
able  to  make  it  under  the  cover  of  a  necessity  alleged  to  arise  from  the  action 
of  the  banks  of  New  York,  in  Philadelphia  the  general  opinion  was  voiced 
by  the  "United  State  Gazette,"  which  said.  May  12th:  "A  large  portion  of 
the  benefit  of  the  measure  would  have  been  lost  if  any  bank  had  declined  to 
join  with  the  rest.  Great  credit  is  due  to  the  United  States  Bank  for  her 
accord,  to  which  step  Mr.  Biddle  has  surrendered  his  reluctant  consent  in 
obedience  to  the  obvious  interests  of  the  community,  without  impairing  in 
the  general  opinion  the  stability  or  fame  of  his  institution."  To  the  con- 
trary of  this  we  must  believe  that  Biddle  now  lost  the  grandest  chance 
which  he  and  the  Bank  ever  had.  "if,"  wrote  Gouge  in  1838,  "he  had 
maintained  specie  payments  for  only  one  month  after  the  other  banks 
suspended,  the  government  would,  under  the  existing  law,  have  been  com- 
pelled to  employ  his  Bank  as  its  sole  financial  agent;  and  thus  his  triumph 
over  the  government,  which  is  the  wish  dearest  to  his  heart,  would  have 
been  complete."!  It  was  admitter!  on  all  sides  that  the  "experiment" 
of  using  the  local  banks  had  failed,  and  there  was  a  very  strong  revulsion 
of  feeling  in  favor  of  the  national  bank,  if  the  Bank  of  the  United  States 
had  really  been  strong  and  sound,  and  had  proved  it  by  going  on  when 
the  others  suspended,  it  is  as  probable  as  any  such  historical  speculation 
ever  can  be  that  it  would  have  been  reinstated  in  its  former  position. 

General  Hamilton  of  South  Carolina,  who  was  president  of  the  bank 
which  had  bought  the  branch  of  the  United  States  Bank  at  Charleston,  in 
his  turn  addressed  a  letter  to  Biddle,  proposing  a  bank  convention  to  be 
held  at  Philadelphia  in  August,  to  bring  about  resumption.  He  declared 
that  the  speculation  had  its  causes  outside  of  all  the  controversies  betweer. 
the  Bank  and  Jackson.      He  thought  that  the  Pennsylvania  charter  for  /. 


18 


*  ;i  Niles,  193. 


t  Democratic  Review,  December,  i8}8. 


( 


',    a 


'■  '•'iJ 

i 


274 


A  HISTORY  OF  BANKING. 


V. 


$1S  million  bank  was  unwise,  and  only  a  sign  of  the  infatuation  for  banks, 
and  proposed  that  an  amendment  to  the  Constitution  should  be  sought  to 
incorporate  a  national  bank. 

Adams  did  not  reply  to  Biddle,  but  he  also  wrote  a  public  letter  in  July : 
"  W«'  are  now  told,"  said  he,  "that  all  the  banks  in  the  United  States  have 
suspended  specie  payments;  and  what  is  the  suspension  of  specie  pay- 
ments but  setting  the  laws  of  property  at  defiance  ?  If  the  president  and 
directors  of  a  bank  have  issued  a  million  of  bills,  promising  to  pay  five  dol- 
lars to  the  holder  of  each  and  every  one  of  them,  the  suspension  of  specie 
payments  is  by  one  act  the  breach  of  a  million  of  promises.  What  is  this 
but  fraud  upon  every  holder  of  their  bills,  and  what  difference  is  there 
between  the  president  and  directors  of  such  a  bank  and  the  skillful  artist 
who  engraves  a  bank  bill,  a  fac-simile  of  the  bill  signed  by  the  president  and 
directors,  and  saves  them  the  trouble  of  signing  it  by  doing  it  for  them  ? 
The  only  difference  that  I  can  see  in  the  two  operations  is  that  the  artist 
gives  evidence  of  superior  skill  and  superior  modesty.  It  requires  more 
talent  to  sign  another  man's  name  than  one's  own,  and  the  counterfeiter 
does  at  least  his  work  in  the  dark,  while  the  suspenders  of  specie  payments 
brazen  it  in  the  face  of  day  and  laugh  at  the  victims  and  dupes  who  have 
put  faith  in  their  promises." 

Public  meetings  were  held  from  one  end  of  the  country  to  the  other 
about  the  suspension  of  specie  payments,  at  which  resolutions  were  adopted 
embodying  every  conceivable  view  of  the  case,  its  causes  and  its  remedies. 
A  meeting  of  loco  focos  at  Philadelphia  declared  that  all  the  banks  were  in 
league  with  Britain  and  European  monarchies  to  plunder  free  America  by 
draining  off  the  gold.  They  appointed  a  committee  to  ask  the  banks  to  pay 
their  five  and  ten  dollar  notes.  The  banks  replied  that  on  a  specie  currency 
only  those  could  do  business  who  had  gold  and  silver.  The  banks  supply 
by  their  credit  a  deficiency  which  otherwise  would  exist  in  the  circulation. 
This  was  another  repetition  of  the  notion  that  "there  would  not  be  money 
enough  to  do  the  business  if  it  were  not  for  the  bank  issues."  At  the  meet- 
ing at  Baltimore  the  resolutions  denounced  the  British  party  and  the  United 
States  Bank  for  "preconcerted  suspension;"  they  declared  banking  a  fraud, 
and  denounced  the  issue  of  small  notes  by  corporations. 

In  May  a  Constitutional  Convention  was  held  in  Pennsylvania,  one  of 
the  chief  causes  for  calling  which  had  been  the  hope  of  introducing  into  the 
Constitution  limitations  on  banking  and  paper  money.  A  large  party  also 
hoped  by  this  means  to  destroy  the  United  States  Bank.  The  attempt 
failed,  but  an  article  was  put  into  the  new  Constitution  requiring  six  months 
public  notice  of  an  intended  application  for  the  enactment  or  extension  of  a 
bank  charter;  no  charter  to  run  more  than  twenty  years;  every  charter  to 
reserve  to  the  Legislature  the  right  to  amend  or  annul  it,  if  injurious  to  citi- 
zens, though  without  injustice  to  corporators;  no  one  law  to  create  or 
extend  the  charter  of  more  than  one  corporation. 

On  the  4th  of  July,  an  Anti-bank  Convention  was  held  at  Harrisburgh, 


THE  FINAMCI/iL  REPULSION;  1837. 


a?? 


Ine  of 
|o  the 

also 

|empt 

)nths 

of  a 
Iter  to 

citi- 
kte  or 

lurgh, 


which  endeavored  to  make  the  hostihty  to  the  banks  a  political  force,  and 
to  or>j[anize  it  for  the  purpose  of  a  "reform  of  banking.  "  In  all  these  com- 
plaints and  denunciations  of  banking  the  positive  desire  which  is  expressed 
is  that  the  banks  shall  serve  equality  by  their  operations.  A  loco  foco  meet- 
ing at  New  York  resolved  that  the  banks  ought  to  help  poor  men  to  emi- 
grate and  that  Congress  ought  to  give  each  one  from  eighty  to  two  hundred 
acres. 

In  August,  Biddle  still  hoped  and  believed  that  the  Executive  Department 
would  find  it  necessary  to  return  to  the  Bank  of  the  United  States.*  In  Sep- 
tember Adams  mentioned  that  he  bought  of  the  Bank  in  Philadelphia,  with  its 
own  note,  a  draft  on  Washington.  The  draft  was  payable  in  current  funds, 
which  were  depreciated  eight  per  cent,  or  twelve  per  cent.  He  made  no 
remark  because  he  wanted  to  be  unbiased  about  the  Bank. 

The  method  in  which,  at  this  time,  the  Bank  operated  the  foreign 
exchange  transactions  of  the  country  was  as  follows;  "The  cotton  crop  of 
the  South  beginning  to  come  into  market  at  New  Orleans,  Mobile,  and 
other  cities,  in  the  month  of  October,  and  continuing  to  come  until  the 
following  summer,  a  large  share  of  the  operations  of  the  Bank  of  the  United 
States,  through  its  branches  at  those  places,  has  been  to  purchase  the  bills  of 
exchange  drawn  on  Europe  or  the  northern  cities  by  the  merchants  who 
have  shipped  cotton.  By  the  purchase  of  these  bills,  payable  in  the  notes  of 
the  Bank,  the  merchants  of  the  South  have  been  enabled  to  pay  the  planters 
of  Louisiana,  Mississippi,  Alabama,  Tennessee,  and  other  States,  for  their 
cotton ;  who  in  turn  have  been  enabled  to  pay  their  debts  to  the  country 
merchants;  and  these  last  again  to  the  merchants  in  New  York  and  Phila- 
delphia. In  performing  this  particular  function,  the  notes  of  the  Bank  have 
in  reality  been  nothing  but  duplicate  bills  of  exchange,  absolutely  represent- 
ing a  certain  quantity  of  cotton,  taking  the  place  of  the  original  bills  which 
the  shippers  of  the  cotton  had  drawn,  and  possessing  this  advantage  over 
the  latter,  that,  being  universal  credit  and  negotiable  without  endorsement, 
they  could  be  apphed  to  the  payment  of  every  debt,  great  or  small.  They 
were  therefore  preferred  to  any  other  form  of  bills  to  which  a  sale  of  cotton 
could  give  rise;  and  if  they  did  not  get  back  to  the  Bank  in  Philadelphia  as 
soon  as  the  bills  for  the  purchase  of  which  they  were  issued,  it  was  because 
they  had  to  traverse  a  more  circuitous  route,  "f 

Biddle  was  fully  familiar  with  these  operations.  He  had  been  practising 
them  for  ten  or  twelve  years.  It  was  with  his  mind  on  them  that  he  made  his 
contracts  for  the  relief  of  New  York.  It  was  one  of  the  dearest  triumphs  of 
his  life  to  "save"  New  York,  and  he  got,  at  the  same  time,  a  complete 
cover  of  magnanimity  and  glory  for  the  things  which  he  was  most  anxious 
to  do,  and  which,  if  done  upon  his  own  motion,  would  not  have  looked  well. 
In  issuing  his  post-notes  for  the  assistance  of  the  New  Yorkers,  he  found 
himself  placed  in  far  more  complete  control  of  the  whole  movement  of  com- 


n 


•  9  Adams's  Diary,  36). 


t  I  Raguet's  Register,  97. 


i  i  1 


: ''  1 


II 


37*5 


A  HISTORY  OF  BANKING. 


merce  and  banking  In  the  United  States,  and  the  relations  of  the  same  with 
foreign  countries,  than  he  ever  had  been  before;  and  if  his  Bank  had  been 
sound  instead  of  being  rotten,  the  plans  which  he  made  might  have  been 
crowned  with  complete  success.  The  sale  of  securities  in  Europe  and  the 
constantly  extended  credits  there  had,  as  we  have  seen,  produced  an 
entirely  artificial  state  of  things  here,  inside  of  which  the  inflation  had  been 
pushed  to  extravagant  limits.  The  failure  of  the  credit  abroad  meant  a  turn 
in  the  exchanges,  an  export  of  specie,  contraction  by  the  banks,  a  fall  in 
prices,  a  collapse  of  the  improvement  enterprises  in  the  States,  and  a  general 
bankruptcy.  Riddle's  doctrine  was  that  there  must  be  an  extension  of 
credit  until  crops  could  be  produced  and  marketed  in  order  to  reduce  the 
debt.  He  said  nothing  of  the  frugality  in  expenditure,  which  must  attend 
upon  this  as  an  essential  factor.  Indeed  his  position  and  that  of  his  Bank 
made  him  necessarily  an  inflationist;  and  this,  as  we  shall  see,  was  why 
his  plan  failed.  For  the  first  step,  however,  he  proposed  to  get  the  exten- 
sion by  substituting  for  the  credit  of  individuals,  which  had  broken  down, 
the  credit  of  his  Bank,  which  was  the  best  credit  then  in  the  market.  Then 
his  plan  was  to  get  control  of  the  crops,  which  in  fact  meant  cotton,  on 
behalf  of  the  Bank,  and  with  the  proceeds  cancel  his  bonds. 

In  i84r,  Biddle  gave  as  the  reason  for  buying  cotton  on  account  of  the 
Bank,  that  it  was  not  safe  to  buy  private  bills,  in  the  summer  of  1837,  on 
account  of  their  poor  credit.  It  seems,  however,  that  the  Bank  had  already 
a  large  amount  of  southwestern  bank  notes  in  its  possession,  at  that  time, 
as  it  certainly  had  later,  and  that  it  was  desired  to  use  them.  In  this  period, 
as  in  1818,  there  was  an  immense  speculation  in  uncurrent  notes.  The 
different  artifices  and  methods  by  which  they  were  employed  constituted 
an  art  by  itself.  Such  a  speculation  was  combined  with  the  operations  of 
the  Bank  in  cotton.  In  the  absence  of  opportunities  to  study  these  tricks 
and  devices  thoroughly,  there  remains  an  element  of  mystery  for  us  in  some 
of  them. 

The  purchases  of  cotton  for  account  of  the  Bank  began  in  July  on  the 
last  of  the  crop  of  1836-7.'*'  In  one  of  the  cases  at  law  which  arose  in  1842 
a  brother  of  Jaudon  was  put  on  the  stand.  He  testified  that  Biddle  and 
Jaudon  entered  into  a  partnership  and  furnished  the  witness  with  funds  of 
the  Bank  to  carry  on  the  business  as  their  agent.  At  different  times  he 
obtained  $2  millions  from  the  bank.  He  was  allowed  two  per  cent,  com- 
mission, which  was  added  to  the  cost  of  the  merchandise.  The  goods  were 
then  shipped  to  Europe  and  sold.  His  commission  on  purchases  amounted 
to  $40,000,  besides  which  he  received  a  "bonification  commission"  on  the 
sales,  amounting  to  $20,000  more.  The  money  was  obtained  from  the 
Bank  by  credits  passed  to  the  witness's  account  on  tickets  or  orders  signed 
by  Cowperthwaite,  cashier.  The  profits  amounted  to  $50,000,  which  was 
divided  between  Biddle  and  Jaudon.     The  business  was  conducted  through 

•  51  Niles,  322. 


1^ 

ill 

1 

■  ;i 

THE  FINANCIAL  REPULSION;  18)7. 


iff 


the  Committee  on  Foreign  Exchanges  and  apparently  with  their  knowledge 
and  consent.  Two  of  the  members  of  that  Committee  testified  that  they 
had  been  wholly  ignorant  of  the  nature  of  the  transaction  and  would  not 
have  permitted  it  if  they  had  known  about  it.* 

The  investigating  Committee  of  1841  could  not  ascertain  what  had  been 
the  profit  or  loss  nf  the  first  transactions  bec.uisc  the  papers  had  been  with- 
drawn fron^  the  Bank.  They  said  that  accounts  appearing  on  the  books  of 
the  Bank  as  "Advances  on  Merchandise"  were  in  fact  payments  for  cotton, 
tobacco,  and  other  produce,  bought  by  Mr.  Nicholas  Biddle,  and  shipped 
by  himself  and  others  to  Europe. 

During  the  summer  the  great  banks  in  the  Gulf  States  began  the  same 
operation.  This  policy  was  extremely  popular  in  the  cotton  region.  The 
Vicksburg  "Sentinel"  said,  in  November,  1837,  of  the  Brandon  Bank:  "It 
will  be  seen  at  a  glance  that  the  master  stroke  of  policy  pursued  by  this 
bank  last  summer,  while  it  rallied  around  it  the  devotion  of  our  planters, 
will  give  it  the  command  of  eastern  funds  or  specie,  and  thus  place  it  in  a 
better  position  than  any  other  banking  institution  in  the  United  States.  The 
timely  aid  which  it  afforded  to  our  planters  last  summer  has  awakened  a 
feeling  in  its  behalf  all  over  the  country.  It  is  decidedly  the  most  popular 
bank  in  the  State;  and  it  has  the  means  at  its  command  of  resuming  specie 
payments  sooner  than  any  bank  in  the  South,  "f 

The  failure  of  the  banks,  including  the  deposit  banks,  almost  arrested  the 
operations  of  the  treasury  of  the  United  States.  May  12th  the  Secretary 
ordered  collectors  to  keep  in  their  own  hands  money  collected  for  duties,  if 
the  deposit  banks  should  suspend.  Payments  out  of  the  treasury  were  to  be 
made  by  checks  on  those  banks.  If  such  checks  were  not  paid,  at  specie 
value,  they  would  be  received  for  dues  to  the  government,  and  Congress 
would  be  asked  to  provide  for  them.  Thus  a  new  kind  of  currency  was 
produced,  and  a  kind  cf  sub-treasury  system  grew  out  of  the  situation.  A 
case  is  mentioned  in  which  ten  per  cent,  premium  was  paid  for  gold  to  pay 
duties,  while  debentures  were  paid  by  checks  on  the  deposit  banks  payable 
in  their  notes.J  Such  cases  might  occur,  if  the  person  entitled  to  debentures 
was  so  eager  for  his  money  as  to  accept  the  notes  of  the  suspended  deposit 
bank;  but  the  government  never  authorized  this  or  recognized  it,  and  the 
checks  were  salable  at  a  slight  discount  to  all  persons  who  had  anything 
to  pay  into  the  treasury.  The  premium  on  them  steadily  advanced  during 
the  summer  until  it  was  just  less  than  that  on  specie.  In  the  meantime  the 
deposits  lay  untouched.  May  14th,  the  Postmaster-general  ordered  post- 
masters to  take  only  specie  or  specie  notes  for  dues  to  that  department.  It 
was  in  this  connection  that  the  lack  of  small  coin  was  most  feU.  May  isth 
the  Solicitor  of  the  Treasury  ordered  collectors  to  postpone  suits  on  duty 
bonds,  at  six  per  cent.,  until  October  ist,  if  proper  security  was  given.  At  a 
meeting  at  Boston,  May  17th,  very  violent  language  was  used  about  the  rule 


tl 


il 


'I 


•  I 


k  '  I' 


•  Gouge  ;  lournal  of  Banking,  i6^. 


t  I  iUguct's  Register,  191. 


t  5»  NUes,  177. 


'm 


'\ 


278 


A  HISTORY  OP  DANKING. 


that  the  Post  Olfice  Dcpaitinont  should  tako  oiih-  spciio.  A  coinmillci' 
which  was  aipoinlod  did  not  call  the  moctiiig  togi'thcr  again  hrcausc  it  was 
found  that  the  law  allowed  no  other  course  than  that  which  had  been  taken. 
The  Collector  at  New  York  declared  that  he  wouKI  lake  bank  notes  lor  duties 
on  his  own  responsibility,  Init  was  rebukeil  and  corrected  by  the  Secretary 
of  the  Treasury ;  yet  the  receipt  of  treasury  drafts  on  the  deposit  b.uiks  Tir 
duties  was  authorized,  in  New  Orleans  the  (A»llector  and  I'oslinasler  seem 
to  have  nullified  the  orders.* 

The  .Secretary  of  the  Treasury  also  addressed  a  circular  to  the  deposit 
banks,  asking  them  whether  they  expected  lo  resume  soon,  what  steps  they 
were  taking  to  bring  about  resumption,  and  what  measures  they  proposed 
to  take  to  indemnity  the  governinent  lor  the  breach  of  contract. 

The  feeling  of  the  administration  and  its  supporters  tow. ird  the  deposit 
banks  at  this  time  was  one  of  .inimosity  and  resentment.  It  was  fell  that 
the  Jackson  parly  had  broken  down  the  great  Hank  for  them,  h.id  given  them 
a  magnilicent  chance,  had  put  faith  in  them  and  loaded  them  with  favors, 
and  h.ul  even  incurred  «Hlium  on  their  behalf,  and  that  the  banks  had  returned 
this  only  by  sellishness  and  folly.  It  was  fell  that  they  had  made  no  return 
to  the  Jackson  party,  although  they  had  in  tact  given  it  their  voles,  but  that 
they  h.id  by  their  exlr.ivaganl  behavior  brought  disgrace  upon  the  adminis- 
tration and  betrayed  its  responsibility.  No  one  took  up  the  defense  of  these 
b.mks.  and  the  rancor  against  them  found  little  expression.  1  he  most  out- 
spoken denunciation  of  them  was  in  a  letter  by  Jackson,  July  oth: 

"The  history  of  the  world  never  has  recorded  such  b.ise  treachery  and 
pertidy  as  has  been  committed  by  the  deposit  banks  .against  the  government, 
and  purely  with  the  view  of  gratifying  Middle  and  the  Barings,  and  by  the 
suspension  of  specie  payments,  degrade,  embarrass,  and  ruin  if  they  could 
their  own  country."  "Now  is  the  lime  to  separate  the  government  from 
all  banks— receive  and  disburse  the  revenue  in  nothing  but  gold  and  silver 
coin,  and  the  circulation  of  our  coin  through  all  public  disbursements  will 
regulate  the  currency  forever  hereafter — keep  the  government  free  from  all 
embarrassment,  whilst  it  leaves  the  commercial  community  to  trade  upon 
its  own\:apital.  and  the  banks  to  accommodate  it  with  such  exchange  and 
credit  as  best  suits  their  own  interests — both  being  money  making  concerns, 
devoid  of  patriotism,  looking  alone  to  their  own  interests — regardless  of  all 

others,  "t 

The  opposition  exhausted  the  vocabulary  of  impatient  derision  and 
contumely  upon  the  separation  of  the  treasury  and  the  banks.  They  built 
up  a  theory  of  due  connection  between  the  banks  and  the  fiscal  operations 
of  the  government,  out  of  which  they  affirmed  that  specie  payments  and 
linancial  health  must  necessarily  follow,  and  not  otherwise.  Webster 
especially  distinguished  himself  by  going  about  the  country  elucidating 
these  doctrines.     From  them   were  derived   the  stock   objections   to  the 


*  MNQet,  ii<x 


a  Raguel's  Register,  58. 


THE  I'lNANCIAl.  RIWUISION;  1817. 


379 


t)n  and 
•y  built 
[rations 
Its  and 
Webster 
lidatinj; 
Ito  tlie 


indi'|H'ndiMit  treasury  which  wr;c  roilcrati'd  a^ain  and  a^ain  diirinf(  the 
lollowing  live  yi-ars.  The  policy  adoiMcd  hy  the  administratioti  at  this 
juncture  prevented  the  national  treasury  fioni  beiuK  dragged  down  into  the 
sink  ol"  l)anl<niptcy  into  which  the  banks  had  plunged  themselves. 

In  the  meantime  the  distribution  of  the  surplus  revenue  had  been  taking 
place.  The  lirst  three  insl.illments  were  paid  to  the  States  in  January,  April, 
and  July.  While  this  operation  was  going  on,  the  Treasury,  which  was 
giving  away  .$17  millions,  and  which  had  several  millions  more  locked  up  in 
the  deposit  banks,  which  it  could  not  use  without  .sacrificing  the  principles 
of  currency  and  banking  to  which  it  was  bound  by  law,  was  falling  into 
gre.it  distress  to  meet  its  current  expenditures.  M.iy  isth  the  President 
called  an  extra  session  of  Congress  to  meet  September  ^fh.  In  his  message 
he  enlarged  upon  the  mischievous  effects  of  tiie  expansion  of  credit,  and 
said  that  "the  selected  banks  performed  with  (klelity  and  without  any 
embarr.issment  to  themselves  or  to  the  commimity  their  eng.igements 
to  tile  govermnent,  and  the  system  promised  to  be  permanently  useful;  but 
when  it  became  necessary,  under  the  act  of  June,  1H36,  to  withilr.iw  from 
them  the  public  money  for  the  purpose  of  placing  it  in  :i(iditif)n.il  institutions, 
or  of  transferring  it  to  the  States,  they  found  it  in  many  c.ises  inconvenient 
to  comply  with  the  demands  of  tlie  Treasury,  and  numerous  .ind  pressing 
applic.itions  were  made  for  indulgence  or  relief.  As  the  inst.illments  under 
the  tieposit  law  became  payable,  their  own  embarr.issment  and  the  necessity 
under  which  they  lay  of  curtailing  their  discounts  and  calling  in  thiir  debts, 
increased  the  general  distress,  and  contributed  with  other  causes  to  ha.sten 
the  revulsion  in  which,  at  length,  they,  in  common  with  the  other  banks, 
were  fatally  involved."  lie  declared  that  the  law  of  the  United  St.ites,  from 
the  beginning,  provided  that  the  revenue  should  be  received  in  nf)tiiing  but 
gold  and  silver,  "Public  exigency  at  the  outset  of  the  government,  without 
direct  legislative  authority,  led  to  the  use  of  banks  as  fiscal  ;iids  to  the 
Treasury.  In  admitted  deviation  from  the  law  at  the  same  period,  and 
under  the  same  exigency,  the  .Secretary  of  the  Tre.isury  received  their  notes 
in  payment  of  duties."*  The  only  justification  for  this  was  th.it  the  notes 
were  immediately  convertible  into  specie.  The  law  of  1836  ;ind  the  reso- 
lution of  1H16  left  the  Treasury  no  place  of  deposit  and  no  currency  for  its 
receipts.  The  government  funds  were  locked  up  in  the  suspended  banks, 
and  there  was  a  large  deficit.  He  was  opposed  to  the  national  bank;  the 
State  banks  had  proved  incompetent;  that  "experiment  had  f;ii!ed."  He 
proposed  the  independent  treasury  system,  with  gold  and  silver  as  the  sole 
medium  for  the  transactions  of  the  government.  This  became  the  propo- 
sition around  which  the  politic.il  battle  was  waged  for  the  next  four  years. 
It  split  the  democratic  party,  the  radical  or  loco  foco  wing  supporting  the 
proposition,  and  the  bank  democrats  going  into  the  opposition  in  order  to 
oppose  it.    The  whole  bank  interest,  therefore,  was  united  against  it.     Somc- 


i,( 


LI 


'  Sec  page  31. 


28o 


A  HISTORY  OF  BANKING. 


f 


i  i 


times  they  alleged  that  if  the  federal  government  did  its  business  with  gold 
and  silver  only,  this  would  give  it  control  of  the  entire  commerce  and  finance 
of  the  country;  sometimes,  on  the  other  hand,  they  declared  that  if  this 
measure  was  adopted,  the  federal  government  would  lose  all  power  to  bring 
about  a  resumption  of  specie  payments,  and  would  thus  abandon  its  most 
important  duty  in  the  existing  circumstances.  It  should  also  be  noticed, 
with  respect  to  the  alleged  curtailments  by  the  banks,  on  account  of  distri- 
bution, that  they  made  none  during  the  latter  half  of  1836,  but,  on  the 
contrary,  increased  their  loans  and  discounts  from  $164  millions  to  $166 
millions.* 

The  Secretary  of  the  Treasury,  in  his  report  at  the  opening  of  the  extra 
session,  stated  that,  in  trying  to  find  other  depositories  which  could  satisfy 
the  requirements  of  the  law,  he  had  succeeded  in  finding  but  one.  Four 
had  not  suspended  and  one  had  resumed,  so  that  he  had  six  at  his  disposal,  f 

If,  at  this  moment,  the  United  States  Bank  of  Pennsylvania  had  been  a 
specie-paying  bank,  impregnable  in  its  banking  strength  and  integrity,  pur- 
suing its  way  in  the  midst  of  the  storm  as  a  model  of  sound  finance,  its 
notes  alone  would  have  satisfied  the  requirements  of  the  law,  and  would 
have  sufficed  in  quantity,  so  that  they  would  have  become  the  currency  of 
the  federal  Treasury ;  neither  would  the  Secretary  have  dared,  when  he  was 
scanning  the  country  for  a  depository,  to  pass  it  by.  J 

The  Secretary  proposed  that  an  issue  of  treasury  notes  should  be  author- 
ized, both  interest-bearing  and  non-interest-bearing;  and  in  fact  proposed 
the  latter  as  a  system  of  government  currency.  The  Treasury  report  in 
December  showed  that  the  total  amount  nominally  in  the  Treasury  was 
over  $34  millions.  Of  this,  $28  millions  was  disposed  of  by  deposit  with 
the  States.  There  were  $1.1  millions  of  old,  unavailable  paper  from  1819; 
$400,000  were  in  the  mint  for  coinage.  There  were  locked  up  in  the 
deposit  banks  $3.5  millions,  and  there  were  trust  funds  $370,797.  The  net 
residue,  therefore,  actually  at  the  disposition  of  the  Secretary,  January,  1838, 
was  only  $700,000.  Of  the  eighty-six  banks  employed  at  the  suspension, 
ten  or  eleven  had  paid  over  all  the  money  held  by  them.  Some  still  held 
very  large  sums. 

In  order  to  form  some  idea  of  the  operations  which  were  going  on,  and 
which  within  twelve  months  had  been  inflicting  shocks  upon  the  whole 
monetary  system  of  the  country,  let  it  be  noticed  that  the  land  speculations 
in  the  latter  half  of  1836  had  been  carried  on  under  the  specie  circular, 
causing  a  movement  of  specie  to  the  Mississippi  Valley ;  also  that  the  Secre- 
tary of  the  Treasury  had  been  moving  the  public  deposits  inland,  in  order 
to  distribute  them  "evenly."  The  consequence  was  that  the  public 
deposits  in  the  banks  of  the  Mississippi  Valley  were  some  $8  millions  in 

*  1  Raguet's  Register,  150. 

+  People's  Bank,  Bangor,  Me.;  Brooklyn  Bank,  Brooklyn,  N.  Y.  (after  it  resumed) ;  Planters'  Bank  of  Georgia ;  Insur- 
ance Bank  of  Columbus,  Georgia  ;  Louisville  Savings  Institution,  Ky. ;  Bank  of  the  State  of  Missouri. 
i  See  the  quotation  from  Gouge,  page  273. 


!' 


THE  FINANCIAL  REl^ULSION;  1837. 


a8i 


excess  of  the  amount  of  surplus  revenue  to  be  distributed  to  the  States  of 
the  Mississippi  Valley;  so  that  that  amount  in  specie  was  called  for  to  be 
transferred  back  again  to  the  Atlantic  coast. 

Congress  passed  an  act,  October  2d,  postponing  the  payment  of  the 
fourth  installment  until  January  1,  1839.  At  that  time  there  was  no  surplus, 
and  the  fourth  installment  never  was  paid.  The  whigs  declared  that  there 
was  a  quasi  contract,  and  they  wanted  to  issue  treasury  notes  in  order  to  pay 
the  amount.  The  Secretary  of  the  Treasury  wanted  to  recall  or  retain  the 
installment  because  it  was  needed  for  current  expenses.  J.  Q.  Adams 
proposed  to  set  apart  the  debt  of  the  deposit  banks  to  pay  the  fourth  install- 
ment, and,  if  it  was  not  sufficient,  to  appropriate  the  payments  for  the  gov- 
ernment stock  in  the  Bank  of  the  United  States  to  make  up  the  deficiency. 
He  showed  that  the  balances  due  from  the  deposit  banks  were  nearly  all  due 
in  the  southwestern  States.  The  Treasury  had  drawn  nearly  all  its  credit 
from  its  best  debtors  for  the  first  three  installments,  and  nearly  all  its  credit 
was  yet  outstanding  with  its  worst  debtors  for  the  remaining  installment. 
"The  balances  due  from  the  deposit  banks  in  the  single  State  of  Mississippi, 
a  State  with  four  electoral  votes,  are  nearly  $100,000  more  than  adequate 
to  pay  the  whole  fourth  installment,  receivable  by  herself  and  the  six  New 
England  States."  Another  act  of  October  14th  took  from  the  Secretary  of 
the  Treasury  the  power  to  recall  these  "deposits"  with  the  States  and  con- 
ferred it  on  Congress,  who  have  never  had  courage,  even  in  the  exigencies 
of  the  civil  war,  to  recall  this  money.  October  i6th,  a  law  was  passed  to 
institute  suit  against  the  deposit  banks  for  the  deposits,  unless  they  should 
pay  or  give  bonds  with  security  to  pay,  in  three  installments,  July  i,  1838, 
January  i,  1839,  and  July  i,  1840.  In  his  message  to  the  New  York  Legislature 
in  1840,  Governor  Seward  said  that  the  fourth  installment  was  still  with- 
held. "1  cannot,"  he  added,  "doubt  that  you  will  insist  upon  the  ful- 
fillment of  the  pledge  of  the  federal  government,  and  will,  at  the  same  time, 
protest  against  the  withdrawal  of  the  installments  already  received." 

October  12th,  treasury  notes  were  authorized  in  denominations  of  not 
less  than  $50,  receivable  in  all  payments  to  the  United  States,  and  bearing 
not  more  than  six  per  cent,  interest.  On  the  same  day  an  act  was  passed 
extending  the  credit  on  all  bonds  for  duties  similar  to  the  extension  which 
had  been  granted  by  the  Treasury  Department  since  May.  Each  bond  was 
to  have  an  extension  of  nine  months. 

The  first  bond  of  the  Bank  for  the  government  stock  was  due  in  Septem- 
ber, 1837.  It  bought  up,  in  anticipation  of  this  payment,  drafts  by  the 
Treasury  on  the  deposit  banks,  in  behalf  of  the  States  under  the  distribution. 
There  was  some  objection  at  the  Treasury  to  receiving  these;  but  a  clause 
was  introduced  into  an  appropriation  bill  allowing  it. 

The  monthly  reports  to  the  Auditor  of  the  State  of  Pennsylvania,  which 
were  called  for  by  the  charter  of  the  United  States  Bank,  were  regularly 
made  during  1837.  The  capital  is  put  at  $28  millions  until  July  ist,  when 
it  is  put  at  $35  millions  again.     The  loans  in  Europe,  on  the  ist  of  January, 


Hi 


r 


11 1 


i 


I 

i 


■%r^ 


I 


\  'M 


a 


''^  ' 


282 


A  HISTORY  OF  BANKING. 


were  $6,788, 194,  and  so  remained  until  August  ist,  when  they  began  to 
decline,  and  were,  October  2d,  $4,798,611,  where  they  remained  until  the 
end  of  the  year.  The  bonds  in  Europe  begin  May  11,  at  $4,318,149;  De- 
cember 1st  they  were  $6,728,189.  Bills  receivable  for  post-notes  begin, 
June  3d,  at  $2,644,242;  they  declined  gradually  to  $713,570  in  December. 
From  July  ist  the  circulation  of  the  old  and  new  Banks  was  stated  separ- 
ately.   December  ist  that  of  the  old  Bank  was  $27.5  millions. 

in  September,  1837,  jaudon's  commission  as  agent  in  England  was 
enlarged.  He  opened  an  agency  with  such  extended  functions  as  to  be 
almost  a  branch  of  the  Bank  of  the  United  States. 

It  was  thought  by  some  that  Jaudon  might  injure  the  "situation  and 
prospects"  of  the  Bank  of  England.*  In  February,  1838,  he  was  said  to  be 
exchanging  shares  of  the  Bank  for  its  bonds.  The  correspondent  thought 
that  he  must  have  disposed  of  $3  millions  worth  of  shares.  They  were  said 
to  be  the  leading  object  of  speculation,  and  the  price  ruled  higher  there  than 
here.f  March  2,  1838,  Jaudon  gave  notice  that  he  would  discount  at  three 
per  cent,  the  bonds  of  the  Bank  which  would  foil  due  April  ist.  A  corre- 
spondent says  that,  by  this  notice  in  respect  to  the  bonds,  the  agent  of  the 
Bank  "by  the  aid  of  his  meltings  of  the  bills  giveii  for  cotton  and  State 
securities  has  succeeded  in  giving  a  couletir  de  rose  aspect  to  that  particular 
description  of  security,  "t  These  operations  were  not,  however,  regarded 
by  the  Englishmen  without  suspicion.  The  correspondent  says  that  it  is 
hardly  understood  how  Jaudon  has  accumulated  the  capital  which  he  appears 
to  have;  "but  some  go  so  far  as  to  say  it  has  been  done  by  the  issue  of 
fresh  bonds  on  the  sale  of  shares."  He  also  undertook  to  exercise  some 
control  of  the  London  money  market,  and  so  found  himself  at  war  with  the 
Barings  and  the  Bank  of  England,  who  disapproved  of  his  proceedings.  The 
Barings  refused  to  keep  the  agreement  which  they  had  made,  the  previous 
spring,  to  meet  the  drafts  of  the  Bank  of  the  United  States.  One  object  of 
enlarging  Jaudon's  mission  in  September  had  been  that  he  might  take  their 
place.  This,  however,  made  the  bills  of  exchange  drawn  by  the  Bank,  drafts 
of  a  principal  on  an  agent,  and  the  Bank  of  England  refused  to  open  an  account 
with  him.§  The  London  "Times"  said,  a  year  later,  that  he  was  able  at  first, 
when  credit  was  easy,  to  get  an  appearance  of  success,  but  that  afterwards 
his  position  was  false.  || 

In  October,  both  in  this  country  and  in  England,  the  financial  situation 
seemed  very  much  improved,  and  it  was  generally  believed  that  the  crisis 
was  over.  It  was  declared  in  London  that  the  American  debts  had  been 
paid  with  unexpected  promptitude,  and  that  this  had  greatly  relieved  the 
situation.^"  In  November,  %2.6  millions,  five  percent,  canal  stock  of  New 
York,  was  sold  to  the  Albany  banks  at  106,  equal  to  specie  par,  to  be  paid 
for  in  specie  as  wanted  for  the  canals,  and  in  the  meantime  to  be  used  solely 


•  I  Raguet's  Register,  235. 

g  56  Niles,  394. 


t  Ibid,  334.  %  Ibid,  349.  %  N.  Y.  "  Express  "  in  54  Niles,  161. 

T  I  Raguet's  Register,  205,  207. 


-■.— ^-itxiiaSSj^- 


THE  FINANCIAL  REPULSION;  1837. 


283 


to  get  specie.  The  banks  were  to  provide  the  Commissioners  with  specie 
which  would  pay  the  interest  on  the  State  debt  until  April,  1838,  and  were 
to  pay  interest  on  the  stocks  sold  or  loaned  to  them. 

In  January,  1838,  Charles  Kuhn  tried  to  force  a  forfeiture  of  the  charter  of 
the  Bank  of  the  United  States  under  that  section  of  it  which  provided  that  if 
it  should  ever  refuse  to  pay  any  of  its  obligations  in  gold  or  silver,  the  holder 
thereof  might  apply  to  any  Judge,  who  should  give  ten  days'  notice  of  a 
trial,  and  if  the  facts  were  substantiated,  should  so  certify  to  the  Governor 
who  should  by  proclamation  declare  the  charter  forfeited.  *  Kuhn  commenced 
the  proceedings,  but  during  the  ten  days'  delay  the  Bank  paid  the  note  with 
twelve  per  cent,  interest,  and  it  was  held  that  the  former  holder  of  it  could 
no  longer,  for  public  purposes,  bring  about  a  forfeiture.!  Kuhn  seems  to 
have  renewed  his  attempt  in  March.  The  Court  gave  full  validity  to  the 
notice  which  had  been  posted  in  the  Bank  upon  the  suspension  of  specie 
payments,  that  all  notes,  checks,  and  drafts  would  be  "payable  in  current 
bank  notes  of  the  city  of  Philadelphia."  This  was  declared  to  be  due  notice 
and  warning  to  Kuhn  that  he  could  not  expect  money  for  an  obligation  of 
bank  notes,  and  the  Judge  said :  "  I  decline  reducing  the  testimony  to  writing 
and  transmitting  it  to  the  Governor,  the  applicant  not  having,  according  to  my 
judgment,  substantiated  the  facts  of  his  case.  "J  This  rendered  another  of 
the  supposed  guarantees  of  the  public  against  the  abuses  of  banking  nugatory. 
In  another  case  Kuhn  recovered  $7,000  with  twelve  per  cent,  interest  from 
the  Bank,  being  deposits  due  him  on  the  8th  of  June,  1837,  which  the  Bank 
had  refused  to  pay  except  in  current  funds. 

The  current  quotation  of  specie  in  1837  and  1838  was  for  half  dollars.  The 
premium  at  New  York,  in  May,  was  eleven ;  it  declined  steadily  until  the 
1st  of  January,  1838,  when  it  was  three;  and  it  ceased  to  exist  on  the  20th 
of  May.  The  exchange  at  New  York  on  New  Orleans  was  at  seven  to  ten 
discount  in  May;  January  i,  1838,  it  was  at  two  to  three  discount;  but  on  the 
1 9th  of  May  it  was  from  eight  to  ten  discount.  The  exchange  at  New  York 
on  Mobile,  January  i,  1838,  was  from  five  and  a-half  to  six  discount;  April 
2 1  St,  it  was  from  twenty-five  to  thirty,  but  then  improved  until  May  2olh, 
when  it  was  twelve  to  fifteen.  February  10,  1838,  exchange  on  London  at 
New  York  was  at  seven  and  a-half  premium ;  specie  being  at  three  and 
a-half  premium ;  making  sterling  exchange  really  five  and  a-half  below  the 
true  par.  In  March  the  domestic  exchanges  were  quoted  at  New  York  as 
follows:  Mississippi,  twenty-five  discount;  Tennessee,  twenty  discount; 
Alabama,  seventeen  discount;  Georgia,  ten  discount;  Ohio,  eight  discount; 
Michigan,  twelve  discount;  and  Wild  Cat,  twenty-five  discount. 

About  April  15,  1838,  notice  was  posted  at  Prime,  Ward  &  King's  that 
arrangements  had  been  made  with  the  Barings  and  the  Bank  of  England  to 
send  to  this  country  jQx  million  sterling  in  specie  to  support  the  banks  in 
resumption,  and  that  ;^  100, 000  had  already  come;  but  in  May  the  Bank  of 


*  Sec  page  238. 


t  2  Ashmead,  170. 


X  2  Raguct's  Register,  12G. 


I ; 

la 

m 
i 


r 


» 'fi 


vl'f? 


IH 


284 


/I  HISTORY  OF  B/INKING. 


U\ 


w 


England  receded  from  this  undertaking.*  There  had  been  some  quarrel 
between  Jaudon  and  the  Bank  of  England,  of  which  only  obscure  and  cer- 
tainly inaccurate  information  transpired  here.  "The  cause  of  that  quarrel 
originated  in  the  jealousy  with  which  Mr.  Jaudon's  doings  in  London  were 
watched."  "  Mr.  Jaudon,  we  all  know,  was  very  coldly  received  by  the 
Barings.  The  Bank  of  England  refused  to  keep  an  account  with  him,  and 
he  was  tabooed  for  a  while.  He  very  quietly,  however,  worked  his  way 
and  surprised  everybody  after  a  while  by  a  great  operation  in  which  he  under- 
bid the  Bank  of  England,  as  before  stated  in  this  paper,  backed  by  the  immense 
cotton  batteries  Mr.  Biddle  was  sending  him,  and  having  principal  control 
over  that  great  staple.  He  had  not  much  to  ftlir  even  from  the  Bank  of  Eng- 
land, cotton  being  better  than  bank  paper  and  quite  as  serviceable  as 
specie."  The  Bank  of  England  has  retired  from  its  enterprise  to  export 
specie,  sacrificing  the  insurance  already  paid  on  an  amount  on  board  ship. 
Specie  is  also  being  sent  from  New  York  to  Philadelphia,  which  does 
not  come  from  the  New  York  banks,  but  may  be  part  of  the  consignment 
from  England.  "The  London  'Morning  Chronicle'  tells  us  the  Bank  of 
England  has  made  peace  with  Mr.  Biddle,  and  here  we  have  a  clue.  The 
same  journal  insinuates  that  the  Bank  of  England  was  weary  of  the 
war."  There  were  rumors  that  Jaudon  was  invading  the  business  of  the 
Bank  of  England  and  would  demand  specie  of  it.  "The  cotton  market  in 
Liverpool,  we  have  reason  to  believe,  has  been  sustained  alone  by  the  irre- 
sistible energies  of  Mr.  Biddle.  His  stock  has  been  immense,  and  he  would 
not  submit  to  the  sacrifice,  and  he  was  not  compelled  to  submit  forthwith. 
However,  to  sustain  the  market  forever,  specie  going  out  all  the  while,  was 
a  thing  impossible.  The  cotton  market  began  to  droop.  This  effort  of  his 
with  the  Bank  of  England— this  reconciliation — may  have  been  to  save  it, 
and  it  may  be  that  it  will  be  kept  stationary,  the  orders  being  countermanded 
for  the  exportation  of  specie.  *  *  *  Of  the  wisdom  of  Mr.  Biddle's  policy 
in  waiting  for  another  crop  before  the  resumption  of  specie  payments,  when 
all  the  banks  of  all  the  States  could  resume  at  once,  we  have  never  had  a 
doubt;  of  the  admirable  manner  in  which  he  has  carried  through  the  storm 
every  solvent  merchant  of  his  own  city,  all  Philadelphia  speaks  with  pride 
and  exalted  satisfaction,  as  it  contrasts  its  own  condition  with  the  mischiev- 
ous rashness  which  a  violent  contraction  of  the  currency  has  inflicted  here, 
but  as  New  Yorkers  we  were  compelled  to  resume,  crop  or  no  crop.  *  *  * 
Among  the  other  curious  movements  of  the  times  is  a  petition  now  in  circu- 
lation in  this  city,  soliciting  Mr.  Biddle  to  establish  a  branch  of  his  Bank,  or 
a  bank,  in  this  city  under  a  general  banking  law.  Politically  and  commer- 
cially speaking,  this  is  one  of  the  phenomena  of  the  day.  To  say  the  least, 
after  all  the  hard  hits  he  has  had  here,  and  the  way  we  have  legislated  him 
out  of  our  domain,  the  spectacle  of  his  coming  thus  back  would  be  a  curious 
one,  but  mercantile  men  have  the  greatest  confidence  in  his  foresight  and 


*  MNiles,  128,  161,  177. 


THE  FINANCIAL  REyULSION;  18^7. 


283 


sagacity.  Whatever  be  the  difTerences  of  opinion  about  his  policy  as  a 
Pcnnsylvanian,  there  Is  none  of  his  skill  as  a  financier  for  the  section  of 
country  he  works  in."*  This  passage  has  very  little  value  for  facts,  but  it  is 
very  important  for  the  rumors  which  were  afloat  and  the  opinions  which 
were  current  at  the  time.  There  was  a  great  desire  at  New  York  that  a 
branch  of  the  Bank  of  the  United  States  should  be  re-established  there.  This 
desire  existed  especially  on  the  part  of  those  who  were  dissatisfied  with  the 
policy  of  contraction,  and  thought  that  the  policy  advocated  by  BIddle  was 
the  proper  one.  May  31st,  Biddle  wrote  to  the  New  Yor'-  Board  of  Trade: 
"The  repeal  of  the  specie  circular  by  Congress,  which  took  place  yesterday, 
is  deemed  the  commencement  of  a  more  harmonious  relation  between  the 
banks  and  the  government,  and  the  Board  of  Directors  hastened  to  show 
their  confidence  in  it  by  renewing  their  connections  with  your  city.  Ac- 
cordingly, 1  am  Instructed  to  apprise  you  that  they  will  at  an  early  period 
make  the  necessary  arrangements  for  such  an  establishment  as  you 
request."! 

In  August  Richard  AIsop  of  Philadelphia  and  George  Griswold  of  New 
York  deposited  $200,000  in  stocks,  and  organized  a  bank,  under  the  general 
banking  law  of  New  York,  with  the  name  of  the  Associates  of  the  United 
States  Bank  at  New  York.  Some  threats  were  made  to  enjoin  the  bank,  but 
it  commenced  business  on  the  27th  of  September,  and  began  to  build  a 
banking  house  on  Wall  street.  It  was  always  declared  on  behalf  of  it  that  it 
was  an  Independent  Institution,  allied  with  the  Bank  in  Philadelphia,  but 
not  a  branch  of  it.  J 

On  July  3,  1838,  Biddle  offered  to  loan  $300,000  to  the  Governor  of 
Pennsylvania,  to  repair  the  damages  by  a  freshet  in  the  Juniata,  and  look  to 
the  Legislature  for  reimbursement.     The  offer  was  accepted.  § 


) 


♦  New  York  "  Express,"  In  54  Niles,  161. 


t  1  Raguct's  Register,  ij. 
S  5;  Niles,  306. 


t  See  page  361. 


I;, 


CHAPTER  XIV.— Continued. 


^i  '!     P 


'4\- 


§  2. — The  Resumption  of  i8j8.    The  New  York  Plan  versus  the  Philadelphia 

Plan. 

The  most  serious  limitation  on  investigations  in  political  economy  and 
finance  is  that  we  can  make  no  experiments,  because  we  cannot  dispose  of 
the  time  and  happiness  of  men.  For  this  reason  any  historical  incident 
which  satisfies  approximately  the  conditions  of  an  experiment  is  of  the 
highest  value  for  the  purposes  of  study.  It  is  almost  always  the  case, 
however,  even  when  we  find  a  typical  inst.mce,  that  we  are  left  to  infer 
what  would  have  resulted  if  the  case  had  contained  different  elements  from 
those  which  it  did  contain.  We  have  now  before  us,  however,  in  this  his- 
tory, perhaps  the  most  remarkable  case  that  can  be  found  of  a  complete 
experiment,  at  the  same  time  and  under  the  same  conditions,  of  two  differ- 
ent lines  of  policy.  In  May,  1837,  the  cities  of  New  York  and  Philadelphia 
were  in  as  nearly  the  same  circumstances  in  every  respect  as  any  two  com- 
munities well  can  be.  New  York  adopted  the  policy  of  severe  contraction, 
prompt  liquidation  and  speedy  re-commencement;  Philadelphia  adopted 
that  of  relaxation,  indulgence,  delay,  and  prolonged  liquidation. 

The  opinion  was  almost  universal  amongst  statesmen,  men  of  business, 
and  students  of  political  economy  that  nothing  could  ever  restore  the  cur- 
rency but  another  Bank  of  the  United  States.  Raguet  had  very  much 
changed  his  ideas  since  1828.  He  had  accepted  Riddle's  theories  of  bank- 
ing and  was  a  strong  adherent  of  the  great  Bank.  He  believed  that  if  any 
bank  paid  specie  in  the  midst  of  others  which  did  not,  it  would  immedi- 
ately be  forced  to  pay  every  one  of  its  notes  in  specie,  and  he  did  not  make 
this  opinion  depend  on  the  fact  that  all  the  banks  were  indebted  to  each 
other.  He  also  thought  that  it  was  "utterly  impossible  for  banks  of  two  or 
three  millions  of  dollars  capital  to  exercise  an  influence  over  the  money 
concerns  of  a  whole  community."  He  argued  that  if  the  "government 
patronage"  could  be  pledged  to  the  Bank  of  the  United  States,  it  could 


M'   : 


THE  RESUMPTION  OF  iSj8. 


aSy 


resume  specie  payment  in  less  than  ninety  days,  by  means  of  loans  con- 
tracted in  Europe.  He  had  also  adopted  the  notion  that  only  the  power  of 
the  genera!  government  could  save  the  country,  and  to  the  question, 
How?  he  answered,  "Through  the  agency  of  the  Pennsylvania  Bank  of  the 
United  States,  which,  being  already  in  operation,  presents  the  only  practic- 
able mode  by  which  immediate  action  can  be  effected."  He  added  a  de- 
claration that  he  wrote  without  any  conference  with  the  authorities  of  the 
Bank.  His  good  faith  and  integrity  of  opinion  are  beyond  all  question.  He 
always  insisted  that  without  a  bank  the  government  could  not  bring  about 
a  restoration  of  specie  payment.*  Calhoun  declared  in  the  Senate,  Septem- 
ber 1 8,  1837,  that  specie  payments  could  be  restored  by  re-adopting  the 
Bank,  but  he  would  not  vote  for  this,  because  it  was  unconstitutional. 
That  all  the  whigs  thought  the  same  goes  without  saying. 

The  New  York  act  of  May  16,  1837,  allowed  suspension  for  one  year; 
forced  all  the  banks  which  took  advantage  of  it  to  accept  each  other's  notes; 
forbade  them  to  sell  their  specie;  limited  their  circulation;  provided  that 
they  should  make  monthly  reports  to  the  Bank  Commissioners;  and  pro- 
vided that  the  safety  fund  banks  should  have  no  income  from  the  fund  dur- 
ing suspension.  All  chartered  banks  which  availed  themselves  of  the  act 
must  submit  to  the  visitorial  power  to  which  the  safety  fund  banks  were 
subject.  Finally,  they  were  forbidden  to  make  dividends  while  suspended, 
which  was  the  most  effective  provision  of  all  to  enforce  resumption. f 
Really  insolvent  banks  might  still  be  enjoined  by  the  Commissioners,  when 
the  others  no  longer  need  accept  their  notes.  The  law  only  remitted  those 
penalties  which  were  exactable  by  the  State ;  forfeiture,  etc.  The  remedies 
of  private  creditors  remained  intact,  and  if  they  were  not  enforced  it  was 
only  because  there  was  general  acquiescence  in  the  prevailing  policy. 

The  leading  bankers  in  New  York  began  to  prepare  for  resumption 
immediately  after  the  suspension.  Elsewhere  the  banks  generally  continued 
to  pay  dividends,  sometimes  eight  or  ten  per  cent.,  although  they  were  not 
paying  their  debts.  August  15th,  a  meeting  of  the  officers  of  the  New  York 
banks  was  held,  from  which  a  circular  was  issued  on  the  i8th,  to  some  of 
the  banks  of  other  cities,  inviting  them  to  send  delegates  to  a  convention  at 
New  York  in  October,  at  which  measures  might  be  concerted  for  resump- 
tion. It  was  suggested  that  resumption  might  be  reached  between  January 
and  March,  1838,  although  they  thought  that  the  foreign  exchanges  must 
be  reduced  to  specie  par  before  specie  payments  could  be  re-established. 
The  ground  taken  in  this  circular  was  that  the  banks  were  bound  by  law 
and  honor  to  resume;  that  resumption  did  not  depend  on  congressional 
action  but  must  be  accomplished  by  the  banks.  To  this  circular  the  banks 
of  Philadelphia  replied  that  they  fully  shared  the  anxiety  for  resumption  and 
would  join  in  the  convention  if  it  would  do  any  good,  but  that,  without  the 
action  of  Congress,  resumption  could  be  only  partial  and  temporary;  hence 


*  1  Raguet's  Register,  i6j,  jog. 


t  Gouge  ;  Journal  of  Banking,  164. 


,1", 


r.i 


k 

l»  it 


I 

i  «ii 

m 


U  I 


Si' ' 


m 


A  HISTORY  Oh'  HANKING. 


m 

-'4 

m 

ft  1'; 


ft  : 


1),, 


.!■  if 


il 


m. 


they  declined  to  iippoint  delej^ntes.  J.  Q.  Ad;iins  reports  a  convers.ition 
which  he  had  with  Biddle  at  this  time.  Biddle  thought  that  the  proposition 
of  the  "deposit  banks"  of  New  York  "was  a  mere  stralaKem  to  procure  the 
restoration  to  them  of  the  public  deposits;"  that  they  knew  that  resump- 
tion was  impossible  until  the  foreign  debt  was  paid,  "and  made  the  pro- 
posal to  plume  themselves  upon  it  and  gain  credit  for  the  performance 
under  the  delusion  of  a  false  promise."  He  had  told  General  Hamilton,  of 
South  Carolina,  that  resumption  "could  not  be  maintained  a  week." 

Here  the  matter  rested  until  after  the  extra  session  of  Congress,  when, 
October  2oth,  the  New  York  banks  sent  out  invitations  to  a  convention  at 
New  York,  November  27th.  As  an  indication  of  the  jealousy  existing 
between  the  two  cities,  it  is  instructive  to  note  that  so  good  a  writer  as 
Raguet,  when  trying  to  explain  why  the  exchanges  were  ag.iinst  both  Phil- 
adelphia and  Boston,  in  November,  declared  that  it  was  because  drafts  on 
New  York  were  not  paid,  but  were  thrown  back  on  the  other  two  cities. 
"What  therefore  makes  New  York  the  creditor  city  is  the  fact  that  she  is  a 
debtor."*  As  for  Boston,  the  banks  there  had,  since  the  suspension,  pur- 
sued a  policy  of  expansion.  In  general  the  banking  system  of  Boston  at 
this  period  was  not  strong,  f 

The  bank  convention  sat  from  November  27th  to  December  2d.  There 
were  one  hundred  and  thirty-live  delegates  from  eighteen  States,  including 
Pennsylvania.  The  opposition  was  led  by  Pennsylvania  and  was  dilatory 
and  obstructive  in  its  tactics.  The  leading  proposition  was  to  resume 
July  I,  1818.  The  other  proposition  was  to  appoint  a  committee  to  inquire, 
and  to  call  together  the  convention  again  whenever  it  should  seem  best. 
The  convention  was  adjourned  until  April  i  ith,  without  action.  J 

A  somewhat  acrimonious  controversy  arose  in  the  New  York  papers 
about  this  convention,  and  its  apparent  fiasco.  The  "American"  said: 
"The  most  serious  obstacle  to  New  York  resuming  alone  is  a  sort  of  vague 
and  indefinite  belief  that  unless  the  United  States  Bank  of  Pennsylvania 
comes  into  the  measure,  it  cannot  be  successful."  The  "Commercial 
Advertiser,"  comparing  all  the  banks  of  the  State  of  New  York  with  those 
of  Boston,  Philadelphia,  and  Baltimore,  showed  that  the  former  were 
weaker  than  any  of  the  latter,  and  repelled  the  imputation  cast  on  the  Bank 
of  the  United  States  by  the  "Albany Journal"  for  having  attempted  to 
thwart  the  efforts  of  the  New  York  banks  to  resume.  The  "American" 
argued  that  while  New  York  had  been  reducing  her  obligations,  in  order  to 
resume,  and  Philadelphia  had  gone  on  expanding,  the  latter  had  won  an 
apparent  advantage  at  the  expense  of  the  former,  and  now  New  York  was 
told  that  she  should  not  collect  her  debts  from  Philadelphia,  and  resume, 
and  take  the  benefit  of  resumption,  but  should  allow  the  debt  to  stand. 
The  "Commercial  Advertiser"  answered  this,  which  it  said  was  aimed  at 
the  Bank  of  the  United  States,  by  referring  back  to  the  aid  given  by  Biddle 


W 


i 


,1 


•  I  Raguet 's  Register,  17ft. 


t  Ibid,  1 58. 


X  I  Raguet's  Register,  19a. 


////•  RliSUMrilON  O/'  iHjH. 


a89 


tn  Now  York  in  Mnrch;  but  the  "American"  returned  to  the  charge  dccl.ir- 
uig  tli.it  liu-  issuf  WHS  whether  the  Uniteil  St;ites  WmV.  (it  iViiiisyiv.iiiia 
wniild  allow  the  lianks  nl  New  York  to  resume  without  its  co-operation. 
To  attribute  such  a  position  to  that  H.iiik  was  "a  lilul  upon  the  common 
sense,  upon  tlie  patriotism,  upon  the  character,  and  the  saj,Mcity,  (jt  tlic 
eminent  individual  at  the  head  of  that  institution." 

In  j.uui  iry,  the  New  York  (lele>,Mtes  to  the  bank  convention  pulilished  a 
report  olits  proceedings.  They  set  aside,  in  the  liist  |ilace,  all  the  "consiiler- 
ations  of  presumed  expediency  connected  with  the  general  situation  of  tlic 
country,"  which  had  been  urged  in  the  convention,  but  which  had  nothing 
to  do  with  the  power  of  the  banks  to  sustain  specie  payment.  In  this  they 
referred  to  .ill  the  old  lamili.ir  iiiethoils  ot  arguing  on  these  ciuestions,  which 
Biddle  had  used  .so  much,  anil  which  had  been  echoed  in  the  convention  by 
his  .idherenls.  Against  the  doctrine  of  protracted  suspension  they  denied 
that  it  would  "  be  advantageous  to  the  community  at  large;  I)elieving  on 
the  contrary,  as  we  do,  that  its  general  and  permanent  interest  would  be 
sacriliced  to  temporary  ease  ;md  particular  classes,  should  the  suspension  be 
continued  any  longer  than  absolute  necessity  recpiires."  "When  we  see 
such  extensive  general,  ;md,  we  may  say,  intolerable  evils  flowing  from  a 
general  suspension  of  specie  payments  by  the  banks,  it  is  monstrous  to 
suppose  that,  if  they  were  able  to  resume  and  sustain  such  payments,  they 
should  have  any  discretionary  right  to  decide  or  even  to  discuss  the  question 
whether  a  more  or  less  protracted  suspension  is  consistent  with  their  own 

views  of  'the  condition  and  circumstances  of  the  country. It  .ippeared 

to  us  that  if,  after  the  principal  acknowledged  cause  of  the  suspension,  and 
which  presented  the  greatest  obstacles  to  resumption  had  actually  ceased  to 
operate,  we  were  permitted  to  allege  conjectures  and  contingencies  as  a 
proper  ground  for  protracting  the  suspension,  there  was  no  time  at  which 
some  plausible  reason  of  a  similar  character  might  not  Ik-  adduced,  and  the 
resumption  be  indefinitely  postponed."  Thus  they  brushed  away  the  whole 
sophistry  by  which  the  prolonged  suspension  was  defended.  In  January, 
the  banks  of  Albany  resumed;  also  the  Farmers  and  Mechanics'  Bank  of 
Hartford,  the  New  Haven  Bank,  and  the  Camden  Bank  of  South  Carolina. 
In  I'ebruary,  the  banks  of  Maine  held  a  convention,  at  which  they  expressed 
a  hope  that  the  adjourned  convention  would  propose  an  early  date. 

In  March  the  Committee  on  Banks  made  a  report  to  the  Senate  of  Penn- 
sylvania in  which  the  whole  Biddle  doctrine  of  resumption  was  fully 
expounded.  The  most  effective  point  was  the  assertion  that  the  banks 
could  not  resume  without  enforcing  a  collection  of  $15  millions  or  $20 
millions  from  the  public. 

February  28th,  a  committee  of  the  New  York  banks  on  resumption 
reported  that  resumption  would  be  possible  on  or  before  May  loth,  when  the 
one  year  for  which  suspension  had  been  sanctioned  by  the  Legislature  would 
expire.  By  way  of  preparation,  they  proposed  that  a  system  of  settlement 
of  balances  between  the  banks  should  be  introduced.  The  associated  banks 
19 


r  n, 


<n 


v% 


I 

i 


\i  'j^ 


M 


J90 


/I  HISTORY  OF  BANKING. 


of  Boston  .ilso  proposed  the  s;ime  step  iind  resolved  to  introduce  the  prompt 
payincnt  oC  balances  after  resumption.* 

The  severity  of  the  contraction  by  which  the  New  York  plan  had  been 
pursued  during  1837  is  shown  in  the  following  ligures,  Such  a  policy  could 
not  fail  to  produce  a  party  of  opposition.  The  demand  liabilities  of  the 
New  York  city  banks,  exclusive  of  the  Dry  Dock  Bank,  were,  on  the  1st  of 
January,  1816,  $26.9  millions;  on  the  same  date,  in  1837,  they  were  $3^4 
millions;  and  in  1838,  $12.9  millions. f  April  7,  1838,  they  had  $2.^0  of 
assets  for  $1  of  debt.  They  also  had  New  York  State  stocks  to  the  amount 
of  $1  million,  for  which  specie  was  expected  before  May  loth.  The  banks 
of  Pennsylvania  owed  to  the  banks  of  New  York  city  $1.2  million.  J 

As  the  time  approached  for  the  re-assembling  of  the  bank  convention, 
Biddic  published  another  letter  to  Adams.  He  was  bound  to  find  some 
reasons  for  not  participating  in  it,  and  they  must  be  elevated.  He  declared 
that,  "Our  principles  incline  us  to  an  early  resumption;  our  preparations 
would  justify  it;  and  if  we  were  at  all  influenced  by  the  poor  ambition  of 
doing  what  others  cannot  do  so  readily,  or  the  still  poorer  desire  of  profiting 
by  the  disasters  of  others,  the  occasion  would  certainly  be  tempting.  *  *  f 
The  great  prerogative  of  .strength  is  not  to  be  afraid  of  doing  right;  and  it 
belongs  to  those  who  have  no  fear  that  prudent  counsels  will  be  mistaken 
for  timidity  to  examine  calmly  whether  the  general  interest  of  the  country 
recommends  the  voluntary  resumption  of  specie  payments  in  May  next. 
♦  *  *  The  credit  system  of  the  United  States  and  the  exclusively  metallic 
system  are  now  fairly  in  the  field,  face  to  face  with  each  other;  one  or  the 
other  must  fall."  It  is  a  political  struggle,  and  resumption  is  wanted  for 
political  effect.  The  Executive  is  entirely  hostile  to  banks,  and  resumption 
can  only  be  accomplished,  as  it  was  in  1817,  with  the  help  of  a  Bank  of  the 
United  States.  It  is  true  that  exchange  is  low  at  New  York,  but  this  is  only 
temporary  and  unimportant.  The  plan  of  the  Bank  of  the  United  States  has 
been  especially  to  produce  no  fall  in  prices,  and  to  make  no  contraction,  and 
to  facilitate  the  shipment  of  the  crops  of  the  South  and  West,  "placing  its 
own  confidential  agent  in  England  to  protect  the  great  commercial  and 
pecuniary  interests  of  the  country.  This  seemed  to  be  its  proper  function. 
It  was  thus  that  it  hoped  to  discharge  its  duty  to  the  whole  Union,"  He 
blames  the  New  York  banks  for  their  rigorous  contraction.  The  Tsew 
Yorkers  have  sought  loans  elsewhere.  The  effect  of  this  system  ha?  been 
to  lower  the  value  of  the  goods  or  currency  in  which  the  southern  and  west- 
ern debtors  must  pay,  and  to  have  the  same  effect  upon  our  means  of  pay- 
ing the  foreign  creditor.  May  is  a  very  unfit  time  to  resume.  Resumption 
ought  to  be  general  and  include  the  South  and  West,  but  they  cannot  be 
ready  then,  because  the  returns  on  only  a  small  part  of  the  cotton  crop  will 
have  been  received.    The    New  York  men  are  coerced  by  their  own 

♦  I  Raguct's  Register,  30a. 

t  Report  of  the  Committee  of  New  York  Banks  on  Resumption,  February  a8,  18)8. 

X  "Journal  of  Commerce"  In  i  Raguet's  Register,  }66. 


THE  RFSUMPTION  OF  i8j8. 


iMI 


.'P 


Legislature,  but  their  law  has  no  importance  for  anybody  else.  New  York 
"may  perhaps  bear  it  from  one  than  whom  she  has  never  had  a  more  true 
and  constant  friend,  who  although  an  entire  stranger,  has  for  a  long  series  of 
years,  done  everything  in  iiis  power  to  advance  her  prosperity,  and  never 
saw  her  in  any  misfortune  which  he  did  not  anxiously  strive  to  mitigate; 
but  I  wish  to  serve  her— not  to  ll.itter  her.  !  believe,  then,  that  at  this 
moment  New  York  is  in  an  entirely  false  position.  She  is  obligeil  by  the 
existing  law  to  do  what  she  feels  to  be  wrong.  Her  natural  course  is  to 
appeal  to  her  Representatives  to  rectify  their  mistake,  and  not  to  thrust  out 
their  own  .State  banks  to  be  crushed  by  the  Executive."  The  other  .States 
ought  to  tell  New  York  that  they  will  not  unite  in  this  forced  resumption. 
"The  banks  should  remain  exactly  as  they  are,  prepared  to  resume  but  not 
yet  resuming.  *  *  •  The  American  banks  should  do.  in  short,  what  the 
American  army  did  at  New  Orleans, — stand  fast  behind  their  cotton  bales 
until  the  enemy  has  left  the  country." 

Nalhan  Appleton's  comment  on  this  letter  is:  "It  announced  principles 
as  false  in  political  economy  as  its  whole  character  was  objectionalile  on  the 
score  of  mercantile  morality.  Such  was  the  influence  which  Mr.  Biddle  had 
unfortunately  acquired  in  Philadelphia,  that  his  views,  so  speciously  set 
forth,  were  adopted  in  that  city  without  hesitation,  and  have  continued  to 
control  their  operations  to  the  present  tune.  '  That  letter  "announced  dis- 
tinctly that  the  banks  should  not  resume  until  a  change  took  place  in  the 
administration  of  the  federal  government.  It  also  announced,  in  language 
not  to  be  misunderstood,  that  no  resumption  should  take  place  until  the 
United  States  Bank  was  restored  as  the  fiscal  agent  of  the  government."* 

The  bank  convention  met  again  April  nth.  There  were  143  delegates 
from  18  States.  It  was  voted  to  resume  January  i,  1839.  without  precluding 
an  earlier  date  for  any  who  should  prefer.  New  York  and  Mississippi  alone 
voted  No;  the  latter  State  desiring  to  defer  resumption  until  July,  1839. 
The  New  England  delegates  generally  joined  Philadelphia  and  Baltimore  in 
favor  of  a  later  day.  We  are  somewhat  surprised  to  find  the  Suffolk  Bank 
leading  those  who  held  back  from  resumption,  in  Boston,  but  this  is  perhaps 
explained  when  we  learn  that,  early  in  1838,  "the  Suffolk  drew  its  balance 
from  the  United  States  Bank,  and  received  in  payment  United  States  Bank 
notes,  guaranteed  to  be  paid  in  specie  upon  resumption.  These  notes  the 
directors  of  the  Suffolk  authorized  their  cashier  to  indorse  to  the  amount  of 
$200,000.  It  also  authorized  him  to  issue  them;  to  receive  them  on  deposit; 
and  to  pay  them  in  specie  upon  resumption."!  The  Philadelphia  banks  sent 
a  statement  of  their  reasons  for  being  absent.  The  chief  one  was  that  they 
did  not  care  to  participate  in  the  discussion  of  a  question  which  the  New 
York  banks  had  decided  in  advance. J 

Some  of  the  New  York  banks  resumed  in  April,  and  those  of  Boston 


'4 


J.'.H 


n 


♦  Appleton,  Currency,  16.     (1841.) 


t  Whitney,  11. 


t  I  Raguet's  Register,  3^2;  2  ditto,  338. 


;  jrU 


aci2 


A  HISrciKY  or  HANKING. 


A-i 


VI, 


■  H 


likowisi'.  loi  $s  notes.  Tlio  Now  York  "  Imnniil  dl  (^ommcm-."  ol  llir  2iil. 
s.iiii  ih.il  tl\o  losiimplitin  was  loinplrto.  This  aitioii  nlllic  Now  ^Cik  banks 
sol  a  slaiulaui  aiul  an  oxamplo.  Il  bccaino  an  objrol  ol  ainl'ition  at  onci' 
loi  .ill  banks  which  liosiicii  a  ffiunl  rcpntalion  to  iMulcavoi  to  lollow  this 
ox.iinpK".  In  May  it  was  saiil :  "  Without  n.iniing  .inv  paitiinlai  il.iv.  it  is 
pn>lMl>lo  th  It  all  the  souiui  hanks  cast  ol  Now  Joiscv  will,  at  an  o.nly  ilay. 
one  bv  one,  slide  into  icsuniplion.  No  symptoms  ol  irsuming  have  yol 
appoaivd  in  Joisoy  or  IVnnsvlvania.  or  any  State  south  or  west  ol  her.  il  we 
except  the  .nrangement  maile  by  the  Philadelphia  banks  on  the  evening  of 
the  7th  insl.uU.  ol  p.iving  out  in  sjn'cie  the  tiaetions  ol  .1  iloll.ir,  ami  the  law 
of  Miehig.m  which  retpnres  resumption  on  the  I'lth  ol  June."  May  list. 
i^idiile  wrote  another  letter  lo  Aii.uns.  saying  that,  since  Conj^ress  had 
repealed  the  .Specie  (^ircul.n.  he  s.iw  his  way  to  resume  and  would  do  so. 
He  would  co-operate  with  the  goyerninent.  The  leadership,  however,  had 
passed  away  trom  him.  and  he  had  to  liiui  a  plausible  pretext  lor  lollowinK 
in  a  course  which  he  had  striven  in  v.iin  to  prevent.  The  associated  banks  of 
Philadelphi.i  resolved  that  in.ismuch  .is  the  Specie  Circular  had  been  rescinded, 
thov  would  appoint  a  ct)uunittee  to  conler  with  the  b.uiks  ol'  other  Slates 
about  preparations  tor  resumption. 

Ciovernor  Ritner.  hinvever.  now  took  control  ol  the  mailer.  He  published 
a  proclamation.  July  10th.  lequirin^  the  banks  to  resume,  and  to  pay  and 
withdraw  all  iiiMes  under  $^  on  and  .ittei  August  i  ilh.  July  2  id.  a  conven- 
tion was  held  ,it  Phil.idelphia.  at  which  the  b.u)ks  of  Pennsylvania.  Mary- 
l.uid.  and  Viigini.i  agreed  to  resume  .August  1 -jth.  Those  of  New  linglaiul, 
Kentucky,  and  Missouri  assented  to  this  action.  August  isth.  the  (lovernor 
ol"  New  jersey  comm.mded  all  the  banks  ol  that  State  to  resume  within 
titteen  d.iys.  The  (^hio  b.inks  resumed  during  the  summer.  Those  of 
New  (.'^lie.ms  resolved  to  resume  January  ist.  if  the  United  States  Hank 
would  piovide  a  currency  until  .1  nation. d  bank  should  be  established.*  All 
the  C'.haileston  b.inks  except  the  B.ink  of  the  State  agreed  to  resume 
September  1st.  in  tVtober.  the  banks  o\'  Alabama  held  a  convention  but 
could  not  agree  on  a  d.ite,  and  adjourned  without  action.  In  general  the 
banks  o\  the  soutlnvest  m.ide  no  attempt  to  liquidate  and  resume  at  this 
time,  but  were  t'oUowing  a  policy  of  inll.ition.  So  tar  as  any  intelligent 
.'iction  cm  be  tr.iced  in  their  proceedings,  they  seemed  to  believe  that  the 
price  o\  cotton  would  rise  again,  pay  all  the  debts,  .ind  bring  back  prosperity. 
The  Bank  Commissioners  of  Mississippi  reported  to  the  Legislature  their 
opinion  that  the  banks  cif  that  State  could  not  resume  before  August.  18  ig. 
The  Secretary  of  the  Treasury,  in  his  annual  report,  said:  "It  is  believed 
that  about  seven  hundred  banks  and  branches,  situated  in  twenty-two  States 
and  Territories,  have  .ilready  resumed  specie  payments.  These,  including 
not  tar  from  thirty  which  never  suspended,  make  seven  hundred  and  thirty 


•  54  Niles,  i;5.    S«  p»ge  J99. 


■/■///;■  KliSllMI'lloN  ()/■  i.SjS. 


395 


M-w  |.;.yiiiK  specie.  Scvcnlv  inn,r  ;„r  ,.x|uc1,hI  (o  resume  on  or  In-fnrc  the 
n,s  ol  (he  ensumK  mcmlh.  ( )(  the  resichie.  ;„„o„nlinK  tr.  .-.bout  twenly-five. 
wihnc..p.t;.lo(hn,M$nnilh„Ms  tn  $,,  nnMinns.  it  is  believed  (h;,t  six  or 
eiglil  ;.re  wmJitiK  up  their  coficeriis  lHT;,„se  iiiiprolit.ihle;  .rid  lh;.t  the  rest 
Jire  insolvent." 


h  y^  ■ 


\  'i 


u 


''${ 


m 


%\    '■': 


CHAPTER  XIV.— Continued. 


m 


%}. — 18^8  and  18  JQ.  Treasury  Notes  ami  Bank  Notes.  Continuation  of 
the  Cotton  Operations.  Seeoiiii  Failure  of  tlie  United  States  Ban/;  of 
Pennsylvania.  Serond  General  Ban/;  Suspension,  Sontli  and  West  of 
Neii}  Yor/i. 

The  treasury  notes  authorized  in  1837  were  not  re-issuable.  In  May, 
1838,  the  amount  authorized  had  been  exhausted,  and  the  Treasury  was 
once  more  in  distress.  They  were  made  re-issuable.  May  31st,  Congress 
resolved  that  there  should  be  no  discrimination  in  the  currency  received  by 
the  government  for  different  parts  of  the  revenue.  This  was  a  revocation  of 
the  Specie  Circular.  No  other  laws  were  passed  in  regard  to  the  collection 
of  the  revenue. 

In  a  new  treasury  circular,  June  \,  1838,  the  Secretary  declared  that  he 
was  thrown  back  on  the  Resolution  of  1816.  He  ordered  that  no  bank  note 
under  $20  should  be  received;  none  which  were  not  "payable  on  demand, 
in  gold  or  silver  coin,  at  the  place  where  issued,"  and  "equivalent  to  specie 
at  the  place  where"  received;  none  of  any  bank  which,  since  July  4,  1836, 
had  issued  any  note  for  less  than  five  dollars.  As  matters  stood  these 
were  very  stringent  limitations.  It  was  said  that  there  were  only  four 
banks  in  New  York  City  which  could  satisfy  them.*  The  bank 
interest  was  by  no  means  satisfied.  Its  influence  had  availed  to  cause  the 
treasury  notes  (since  their  use  was  unavoidable),  to  be  put  under  strict 
limitations,  lest  they  should  supersede  bank  notes.  Necessity  had  now 
forced  the  step  of  making  the  treasury  notes  re-issuable,  but  the  banks  looked 
forward  to  a  time,  soon  to  come,  when  the  public  business  would,  once 
more,  be  done  altogether  with  bank  notes.  They  were  banded  together  to 
bring  this  about  and,  if  they  could  succeed,  they  were  indifferent  to  the 
danger  that  some  of  their  number  would  so  abuse  it  that  the  Treasury  might 
be  left  with  their  notes  as  an  unavailable  asset,  as  in  1818.     The  point  was 

*  54  Niles,  22^. 


4   «ii^^ 


COURSE  OF  THE  CRISIS;  i8^8-q. 


295 


well  stated  by  Silas  Wright,  in  a  report  of  the  Senate  Committee  on  Finance: 
"Try  the  proposition  under  consideration  upon  the  banks  themselves. 
Would  they  receive  each  other's  notes  at  par  when  they  were  all  specie- 
paying  banks?  Will  a  single  sound  bank  among  the  whole  number  now 
consent  to  the  passage  of  laws  which  shall  compel  them  to  receive  each 
other's  paper  at  par,  or  even  to  receive  it  at  all,  after  they  shall  have  resumed 
specie  payments.^  Most  certainly  not.  Then  shall  Congress  by  its  legisla- 
tion compel  a  credit  for  the  notes  of  the  banks  at  the  Treasury,  which  they 
will  not  give,  upon  any  terms,  to  the  notes  of  each  other?  Most  assuredly 
the  banks  will  not  have  the  effrontery  to  ask  Congress  to  do  this." 

By  an  act  of  July  sth,  the  clause  of  the  deposit  act  which  forbade  the 
receipt  of  notes  of  banks  which  issued  small  notes  was  suspended  until 
October  ist.  The  Finance  Committee  of  the  Senate  had  made  a  report 
construing  that  law  that  if  a  deposit  bank  had  suspended,  or  had  failed  to 
honor  government  drafts  in  specie,  it  must  be  discontinued  as  a  depository, 
but  might,  upon  resumption,  be  reinstated. 

One  thing  in  the  public  action  of  the  Bank  which  had  caused  more 
general  dissatisfaction  than  anything  else  was  the  continued  circulation  of 
the  notes  of  the  old  Bank.  As  the  New  York  "Journal  of  Commerce" 
argued,  April  18,  1838,  nobody  was  responsible  for  them.  "Suppose  some- 
body should  get  possession  of  the  old  notes  of  Stephen  Girard's  bank,  which 
have  been  paid  by  his  executors,  and  put  them  in  circulation.  No  one  will 
pretend  that  the  executors  of  Mr.  Gir.ird  would  be  bound  to  pay  them.  On 
the  contrary,  we  reckon  that  whoever  should  be  guilty  of  such  an  act  would 
have  his  conduct  characterized  by  some  short  words  and  be  sent  to  prison 
to  answer  for  his  crime."  February  \2,  1838,  the  Senate  Committee  on  the 
judiciary  made  a  report  condemning  the  Bank  for  keeping  these  notes  out, 
and  submitted  a  bill  making  it  a  misdemeanor  for  the  officers  of  any  bank 
whose  charter  had  expired  to  issue  its  notes,  punishable  by  a  line  not 
exceeding  $10,000,  or  imprisonment  at  hard  labor  for  not  more  than  ten 
years,  or  both.  A  very  hot  debate  arose  over  this  bill,  not  upon  the  issue 
directly  presented  by  it,  but  upon  the  whole  political  struggle  about  the  Bank 
;ind  the  financial  situation.  The  act  was  passed  July  7th,  that  part  of  the 
penalty  consisting  in  imprisonment  being  reduced  to  not  less  than  one  nor 
more  than  live  years,  and  it  was  also  provided  that  the  federal  Circuit  Court 
might  prohibit  such  act  by  injunction. 

In  May  the  notes  of  the  old  Bank  were  at  four  discount  in  Boston.* 

The  Treasury  of  the  United  States  being  very  destitute  of  funds,  an  act 
was  passed  July  7,  1838,  authorizing  the  sale  of  the  third  bond  of  the  Bank 
for  the  government  stock,  wh.ch  would  fall  due  in  1839.  it  was  bought 
by  the  Bank.  At  the  next  session,  in  answer  to  a  resolution  of  inquiry, 
the  Secretary  reported  that  the  bonds  of  the  Bank  could  not  be  sold 
either  here  or    abroad  on  the  terms    set  by   law.    except   to   the    Bank; 


i 


'■.  t 


(I 


*  Elliot's  Funding,  1154. 


296 


A  HISTORY  OF  BANKING. 


Ju 


because  the  United  States  would  not  guarantee  the  payment.  The 
purchase  money  was  to  be  paid  in  specie  or  its  equivalent,  which 
was  put  to  the  credit  of  the  United  States  August  i,  1838,  and  the 
Treasury  found  itself  once  more  using  drafts  on  the  Bank.  October  8th, 
the  Paymaster-general  made  known  to  his  subordinates  that  arrangements 
had  been  made  with  the  Bank  to  pay  the  drafts  of  the  Treasurer,  and  he 
authorized  them  to  usc  its  notes  when  they  were  acceptable  to  the  payee 
and  as  far  as  they  were  legal.*  This  was  regarded  as  no  slight  victory  for 
the  Bank. 

In  August  there  was  a  great  improvement  in  trade  at  Baltimore,  Philadel- 
phia and  New  York,  but  the  banks  of  Philadelphia  had  to  contract  suddenly, 
which  produced  a  stringent  money  market. f 

In  that  month  the  Smithson  bequest,  $soo,ooo  in  specie,  was  received. 
The  act  of  July  7,  1838,  ordered  the  Secretary  of  the  Treasury  to  invest  it  in 
five  per  cent.  State  stock.  He  advertised  for  bids  for  it  and  bought  bonds 
of  Arkansas,  issued  for  the  Real  Estate  Bank. 

In  October,  1838,  there  was  great  speculation  at  New  York  on  the  debts 
of  the  sections  still  under  suspension.  Credits  in  that  section  were  held 
over  by  means  of  certificates  of  deposit  and  post-notes,  in  the  expectation 
that  they  would  increase  in  value  upon  resumption.  "The  largest  of  all 
borrowers  is  the  Bank  of  the  United  States,  it  has  been  able,  by  the  estab- 
lishment of  its  bank  in  New  York,  to  borrow  about  half  a  million,  by  way 
of  deposits,  and  its  post-notes  are  constantly  in  market  at  six  per  cent.  A 
large  portion  of  those  which  have  fallen  due  in  September  and  October  have 
been  renewed  for  six  months  more.  It  is  estimated  that  from  %2  millions  to 
$3  millions  of  the  post-notes  of  the  United  States  Bank  are  now  held  by  our 
city  banks."  The  Bank  of  the  State  of  South  Carolina  was  also  negotiating 
the  "Fire  Bonds"  of  that  State,  through  the  agency  of  the  Bank  of  the 
United  States.  J 

At  the  opening  of  the  cotton  season  of  1837-8,  the  speculation  in  cotton 
began  to  attract  attention  in  England,  where  the  buyers  did  not  think  that 
the  state  of  the  market  for  the  finished  goods  warranted  an  advance  in  the 
raw  material.  The  speculation,  therefore,  retarded  the  sales,  but,  in  July, 
1838,  a  correspondent  writes  from  Liverpool: 

"  During  tlie  last  few  months,  since  the  cotton  has  been  arriving  in  great 
quantities  from  the  United  States,  there  has  been  a  great  struggle  here 
between  the  buyers  and  sellers  about  the  prices.  The  large  holders  here  have 
been  straining  every  nerve  to  hold  the  cotton  in  order  to  keep  up  the  prices 
— the  spinners  and  manufacturers  have  been  pursuing  the  opposite  policy  of 
taking  as  little  as  possible.  *  *  *  But  for  the  United  States  Bank,  and  the 
other  banks  of  our  country  that  came  into  the  market,  including  also  their 
policy  of  a  suspension  of  specie  payments,  the  value  of  our  present  cotton 
crop  would  have  been  $10  millions  less  than  it  will  fetch.     The  agents  of 


♦  2  Raguet's  Register,  302. 


t  54  Niles,  353,  36q. 


i  See  page  240. 


^:t.." 


i*.    ■■ 


COURSE  OF  THE  CRISIS;  iS^S-g. 


297 


the  United  States  Bank  here,  Hiiinphreys  &  Biddle,  have  an  immense  stock 
on  hand,  and  are  daily  receiving  more.  *  *  *  The  policy  of  delaying  the 
resumption  of  specie  payments  in  the  South,  whatever  be  the  morals  of  it, 
has  undoubtedly  realizetl  $io  millions  to  the  United  States  that  would  have 
been  thrown  away  here.  Recollect  I  do  not  approve  of  any  banks  going 
into  commercial  operations;  but  our  banks  were  forced  into  that  position  by 
an  overruling  emergency,  and  the  doctrines  held  forth  and  violently  persisted 
in  by  the  Barings  and  their  agents  in  New  York  were  narrow,  selfish,  sui- 
cidal, and  destructive  to  southern  interests  and  southern  property."  "  Hum- 
phreys &  Biddle  will  make  large  profits  by  their  commissions;  the  Bank  will 
lose."*  Ten  days  later  the  same  correspondent  wrote  that  the  buyers  and 
sellers  of  cotton  differed  greatly  as  to  price.  Humphreys  &  Biddle  were 
c  Trying  an  immense  stock,  and  the  spinners  were  only  buying  for  imme- 
diate needs. t  In  September  the  report  was :  "Cotton  is  offei ed  in  abundance 
and  prices  are  supported  in  a  remarkable  manner;  holders  not  submitting  to 
any  decline."* 

In  October,  the  New  York  "Journal  of  Commerce"  said:  "  A  large  part 
of  two  cotton  crops  has  now  been  exported  by  incorporated  banks.  It  was 
well  for  them,  perhaps,  to  come  forward  at  the  moment  of  extreme  panic 
eighteen  months  ago — for  there  seemed  to  be  no  other  means  of  moving 
the  produce  of  the  country.  But  their  interference  extensively  with  the  last 
crop  was  of  very  questionable  propriety,  and  their  further  interference  now 
ought  to  meet  the  most  determined  resistance." 

"The  Bank  of  the  State  of  Alabama  has  already  announced  its  intention 
of  dealing  in  cotton  again,  and  on  a  plan  which  is  especially  objectionable. 
That  bank  has  already  so  mismanaged  its  affairs  as  to  throw  the  State  into 
great  difficulty,  and  if  it  is  suffered  to  go  on,  the  credit  of  the  State  and  its 
merchants  cannot  be  resuscitated.  Specie  payments  will  never  be  facilitated 
in  this  way." 

The  plan  was  put  forth  by  the  Branch  at  Tuscaloosa,  apparently  as  an 
improvement  on  the  scheme  which  the  Mobile  Branch  had  published  in  the 
previous  January.  It  was  dated  August  29,  1838;  proposed  that  cotton 
should  be  sent  to  the  warehouses,  the  warehouse  receipts  being  taken  as 
vouchers;  shipments  at  the  expense  and  risk  of  the  owner;  to  be  made  only 
to  agents  of  the  bank  at  Mobile,  New  Orleans,  New  York  or  Liverpool ;  sales 
to  be  made  in  four  months.  The  owner  must  give  for  advances  a  bill  at 
nine  months  with  two  endorsers;  differences  to  be  adjusted,  if  in  favor  of  the 
bank,  by  a  bill  running  not  beyond  the  following  February  15th.  No  advance 
was  to  be  made  for  more  than  twenty-five  per  cent  in  excess  of  the  value  of 
the  cotton  when  it  was  receiv-d;  all  exchange  to  inure  to  the  shipper,  the 
bank  taking  only  one  and  one-half  percent,  commission  (later  one  per  cent.). 
Advances  might  be  made  before  the  delivery  of  the  cotton  if  the  citizen  was 
in  danger  of  having  his  property  sacrificed.    If  he  will  give  proot  of  solvency, 


\hM 


*  a  Raguet's  Register,  140  ;  Coiresp.  N.  Y.  "  Her.nM." 


I  '.4  Niles,  -,84. 


i  2  R.iguet's  Register,  255. 


.     i!< 


mr 


298 


v4  HISTORY  OF  BANKING. 


E''E 


;      ( 


I         i 
t        ^ 

'1      ! 


'■r.t   '    ; 

11 
if 

1 

E'V  1 


<   ; 


PM' 


and  security  to  deliver  cotton  by  February  ist,  to  cover  a  bill  on  New  York 
running  not  beyond  February  loth,  the  bank  will  buy  such  bill.  The 
drawer,  when  he  delivers  the  cotton,  may  take  up  the  bill  on  New  York  by 
one  on  Mobile  at  nine  months.  If  the  cotton  is  not  delivered,  the  bill  to  be 
sent  to  New  York  and  protested. 

We  shall  see  below  what  the  effect  of  this  plan  was  on  the  bank  which 
adopted  it,  but  we  may  be  sure  that  it  was  very  popular  at  the  time.  It  was 
considered  a  "liberal  policy,"  and  the  bank  which  undertook  it  was  thought 
to  discharge  its  great  function  as  a  Bank  of  the  State.  In  a  case  which  grew 
out  of  it  the  Court  said  that  it  was  strange  that  the  error  in  the  plan  was 
not  perceived  that,  in  offering  to  advance  more  than  the  value,  speculation 
and  liwsuits  were  sure  to  be  fostered.  Some  features  of  the  plan  are  so 
strange  that  a  great  deal  of  familiarity  with  local  and  temporary  circum- 
stances seems  necessary  to  understand  them.  The  Court  say  that  "the  bills 
and  the  property  are  primary  and  concurrent  securities,"  and  add  that  the 
usual  way  formerly  had  been  that  the  owner  shipped  his  own  cotton  and 
sold  the  bill  against  it  to  a  bank.*  After  the  commercial  revulsion  came  on 
this  method  seems  to  have  been  almost  entirely  abandoned. 

The  reason  given  by  this  bank,  in  its  circular,  for  the  plan  proposed  was, 
in  order  to  get  specie  funds  with  which  to  resume. 

A  new  Board  of  Directors  of  the  Mobile  Branch  a  year  later  abandoned 
the  plan  of  these  advances  on  cotton,  because  of  the  wild  speculation  which 
threatened  losses.  Of  the  notes  received  by  the  previous  Board  with 
endorsements  for  the  fourth  quarter  of  the  assumed  value  of  the  cotton  not  a 
dollar  had  been  paid.f 

In  June,  1838,  a  commercial  convention  was  held  at  Richmond  which 
recommended  an  increase  of  the  banking  capital  and  an  extension  of  the 
means  of  communication,  then  being  constructed,  as  essential  means  to  the 
development  of  the  South.  The  banks  of  the  Gulf  States  "after  having 
gone  headlong  into  cotton,  have  turned  their  attention  towards  provisions. 
They  have  bought  up  nearly  all  the  pork  (in  New  Orleans)  and  their  purchases 
in  Cincinnati  and  other  places  have  been  on  a  monopolizing  or  forestalling 
scale.  The  article,  in  consequence,  has  advanced  $6  per  barrel.  There 
have  been  more  meetings  in  Mississippi  to  inquire  into  the  conduct  of 
the  banks.  The  planters  find  that  the  depreciated  currency  will  not  pay  for 
their  supplies,  unless  at  exorbitant  prices,  and  that  the  high  rates  they 
received  for  their  cotton  was  a  mere  delusion  of  the  bank  system.  "| 

As  the  season  of  1818-Q  opened  attempts  were  i.iade  to  make  the  cotton 
monopoly  more  .^'^  cnsive  and  more  close.  In  a  statement  published 
a  year  later  wo      d    ic    -»    n'lLW  and  the  program  set  forth  as  follows: 

It  is  statu  ■-^■  ?.iiV'  .^  carried  out  his  plan  on  the  short  crop  of  1838, 
"by  -mting  :  ■  w/f-i^s  '_.  n  '•■"rn  banks,"  but  that  for  the  following  year, 
accor  ii    ;  to  the  prini.. ;.>'.?    c  . '!  monopoly,  that  the  compass  of  the  opera- 


's Alabama,  4;  ■.  (1841.) 


t  Bank  Commissionere,  1839. 


X  a  Raguet's  Register,  19. 


COURSE  OF  THE  CRISIS;  i8^8-q. 


299 


tions  must  be  constantly  increased,  he  "found  it  necessary  to  strengthen 
the  southern  banks  which  had,  as  his  indirect  agents,  swindled  the  planters 
out  of  the  cotton  to  be  sacrificed  in  Liverpool  at  their  expense;  while  they 
were  compelled  to  receive  depreciated  and  depreciating  paper  for  their 
labor."  The  notes  of  these  banks  were  at  twenty-eight  per  cent,  discount  in 
1838,  and  the  banks  inust  resume  specie  payment  or  they  could  not  get  con- 
trol of  the  crop  of  1839.  "Under  these  circumstances  foreign  capitalists  would 
have  flocked  to  the  South  and  purchased  the  cotton  at  a  fair  price,  and  thus, 
by  throwing  it  into  the  Liverpool  market,  would  have  compelled  Mr.  Biddle 
to  do  the  same,  or  borrow  money  and  risk  the  market  another  year* 
Accordingly  Mr.  Biddle,  in  August  and  September,  18 58,  commenced 
rebuilding  the  southern  banks  that  had  engaged  in  the  cotton  trade;  and  he 
purchased  the  bonds  of  others  to  enable  them  to  go  into  operation  and  to 
continue  the  cotton  monopoly."*  The  officers  of  the  Girard  Bank  and  of 
the  Bank  of  the  United  States  bought  the  State  and  bank  bonds,  chiefly 
those  of  Mississippi,  some  of  which  were  amongst  those  most  hopelessly 
indebted  to  the  federal  government  for  the  deposits.  "In  purchasing  the 
bonds  of  these  banks,  Mr.  Biddle  and  his  compeers  had  other  strong  per- 
sonal inducements.  They  had  purchased  an  immense  amount  of  their  notes 
at  twenty-eight  per  cent,  discount,  and  by  the  operation  were  enabled  to  use 
it  at  par."  These  banks  Hooded  the  country  with  post-notes,  issued  for  ad- 
vances on  cotton,  at  $60  a  bale.  "By  thus  holding  back  the  crop,  Mr.  Biddle 
might  be  enabled  to  realize  a  large  profit  on  the  crop  of  18 ■57-38,  which  he 
had  purchased,  and  in  the  meantime  the  planters  of  the  South  would  be  left 
to  bear  the  whole  of  the  loss  from  a  falling  market,  after  the  monopoly  had 
become  too  heavy  for  the  credit  system  and  the  gambling  system  to  sustain 
it  any  longer,  "f 

We  can  follow  the  action  of  the  Bank  to  "help  the  southwestern  banks 
to  resume"  at  New  Orleans  and  in  Mississippi.  In  June,  183S,  the  banks  at 
the  former  place  wrote  to  Biddle  to  ask  him  to  help  them  to  resume,  on  the 
following  January  ist,  by  furnishing  enough  of  his  notes  to  meet  the 
demand  which  otherwise  they  would  have  to  meet  with  specie.  Septem- 
ber 8th,  he  answered  that  the  policy  of  the  Bank  had  been,  for  a  year,  "to 
defer  the  resumption  of  specie  payments  until  it  could  be  safe  and  general 
throughout  the  Union."  It  has  tried  to  facilitate  this  by  two  measures: 
"first,  by  large  loans  to  banks  in  those  States  where  the  ditficultv  of  resump- 
tion was  greatest;  and  second,  by  advances  to  the  government  whose  dis- 
bursements are  spread  mainly  over  the  South  and  West."  "We  are  pre- 
paring a  large  amount  of  the  issues  of  the  Bank,  which  will  be  sent  to  New 
Orleans,  with  instructions  to  use  them  freely,  not  only  in  the  immediate 
business  of  the  Bank,  but  whenever  they  can  be  made  to  contribute  to  the 
defense  of  the  banks  of  New  Orleans."    The  banks  of  New  Orleans  were 


*  In  his  Ifttfr  to  Adams,  Dectmbtr  loth,  Biddle  boistcd  that  the  Hank  had  made  advances  to  the  amount  of  many 
millions  to  the  banlts  of  the  southwestern  States  to  help  them  to  resume. 

t  N.  Y.  "  Evening  Post,"  August  i\,  18)9  ;  quoted  in  McHenry,  ■'  The  Cotton  Trade.  '  p.  M. 


JOO 


A  HISTORY  OF  BANKING. 


ii  I 


perfectly  satisfied  and  voted  to  resume  at  New  Year.  AH  that  he  had  told 
them  was  that  he  was  printing  bits  of  paper  with  which  to  buy  the  great 
staple  of  Louisiana;  that  these  bits  of  paper  would  presently  appear  in  their 
banks  and  that  they  might  keep  them  and  use  them  "in  the  place  of 
specie"  as  long  as  they  chose. 

In  regard  to  the  operations  and  influence  of  the  United  States  Bank  in 
Mississippi  the  Bank  Commissioners  of  that  State,  in  their  report  of  1838  on 
the  Brandon  Bank,  said:  "The  [Brandon]  bank  purchased  with  New 
Orleans  funds  of  the  agent  of  Mr.  Biddle  $75,000  of  the  notes  of  the  defunct 
Bank  of  the  United  States.  By  this  transaction  $7,500  was  realized  by  the 
Brandon  Bank.  Mr.  Biddle's  agent,  in  consideration  of  receiving  New 
Orleans  funds  for  notes  that  no  one  was  compelled  to  redeem,  exchanged 
an  equal  amount  of  Mississippi  River  bank  notes."  If  this  traffic  is  allowed, 
why  may  not  Biddle  in  another  season  send  notes  enough  to  buy  the  whole 
cotton  crop  with  notes  which  no  one  is  bound  to  redeem  ?  "It  is  common 
to  hear  persons  speak  of  the  liberality  of  Mr.  Biddle's  bank  and  that  the 
southern  banks  must  rely  upon  him  to  enable  them  to  resume  specie  pay- 
ment. So  far  from  his  having  given  support,  the  banks  of  this  State  have, 
with  one  exception,  suffered  by  their  connection  with  him;  for  he  has 
repeatedly  dishonored  checks  with  funds  in  his  possession,  and  it  is  believed 
that  he  has  bought  up  at  a  discount  the  notes  of  those  banks  that  have  con- 
fided in  him,  and  placed  them  against  the  proceeds  of  sterling  bills  on 
which  they  had  expected  to  check.  We  are  strengthened  in  this  opinion 
from  the  fact  that  the  name  of  one  of  the  persons  who  attached  funds  of 
the  Brandon  Bank  in  the  possession  of  Mr.  Biddle  is  the  same  as  that  of 
one  of  his  agents  in  Philadelphia."  Biddle  said  that  he  dishonored  the 
checks  of  the  Brandon  Bank,  although  he  held  its  funds  far  beyond  the 
amount  of  the  attachment,  for  fear  that,  if  it  was  known  that  he  held 
funds  of  the  bank,  further  attachments  would  be  made.  The  Commis- 
sioners do  not  accept  this  justification  and  imply  that  he  wanted  to  lay 
hands  on  the  balance  "As  he  was  preparing  to  resume  about  that  time, 
perhaps  he  yielded  to  the  law  of  necessity." 

Wherever  the  investigator  comes  on  any  of  the  questionable  banking  or 
State  financiering  of  the  period,  there  he  is  very  sure  to  find  the  United 
States  Bank  or  some  members  of  the  Bank  clique  in  the  midst  of  it. 

John  Ingersoll  issued  a  circular  in  Mississipi,  October  22d,  asking  for 
consignments  to  Humphreys  &  Biddle,  on  which  he  would  make  a  f;ur  ad- 
vance, for  the  purpose  of  holding  the  cotton  over  until  the  next  summer,  if 
desirable,  in  order  to  realize  the  highest  possible  price.  Bevan  &  Humphreys 
published  a  denial  that  Ingersoll  had  any  authority  from  Humphreys  &  Biddle, 
but  they  stated  that  all  persons  who  would  ship  cotton  to  that  house  might 
draw  upon  them  at  sixty  days  for  two-thirds  of  the  price,  selling  the  bills 
with  the  bills  of  lading  in  the  open  market  at  the  current  rate  of  the  day.* 

*  2  Raguet's  Register,  379. 


COURSE  OF  THE  CRISIS;  1838-9. 


^01 


In  New  York  it  was  said,  at  the  end  of  November,  that  not  a  bill  against 
cotton  had  been  seen.  The  United  States  Bank  was  buying  the  cotton  in 
the  South  and  selling  exchange  in  the  North  at  109  3-4  as  a  fixed  price.  At 
this  time  money  was  at  twelve  percent,  per  annum  in  Philadelphia,  and  the 
Bank  was  depressing  the  exchange  lest  there  should  be  an  exportation  of 
specie.  "Money  in  New  York  and  Boston  is  said  to  be  abundant,  owing 
probably  to  the  banks  in  those  cities  having  made  their  curtailments  before 
the  resumption.  It  is  supposed  that  were  it  not  for  the  Bank  of  the  United 
States  supplying  the  demand  for  bills  on  London  at  nine  and  a-half,  the  rate 
would  go  to  ten  or  ten  and  a-half,  in  which  case  specie  would  be  exported."* 
At  Philadelphia  the  state  of  the  case  was  quite  different.  The  Bank  of  the 
United  States  issued  a  notice  requiring  fifteen  per  cent,  to  be  paid  on  all 
stock  notes  every  sixty  days,  and  stocks  were  falling.  Post-notes  of  the 
best  credit  were  quoted  at  twelve  per  cent,  per  annum  discount.  Among 
the  causes  stated  were:  "The  neglect  of  the  banks  before  the  resumption 
to  reduce  the  amount  of  their  loans  to  an  extent  equal  to  the  excess  which 
occasioned  the  depreciation  of  the  currency,  by  which  the  proper  check 
would  have  been  given  in  time  to  importations  and  fresh  speculations,  "f 
The  New  York  banks  were  said  to  have  loaned  very  carefully  since  resump- 
tion and  to  be  in  a  very  sound  condition.  There  was  no  pressure  on  the 
merchants,  who  had  made  but  few  notes;  but  there  was  some  complaint 
from  the  brokers,  and  stocks  were  low.  It  is  very  noticeable  that  this  is 
stated  by  the  same  newspaper  which  in  May  had  expressed  doubts  of  the 
wisdom  of  the  New  York  plan.t 

On  account  of  the  complaints  which  began  be  to  heard  of  the  action 
of  the  Bank,  Biddle  found  it  necessary  to  publish  another  letter  to  Adams, 
in  which  he  rehearsed  all  the  defense  of  the  policy  of  the  Bank  in 
making  a  corner  on  cotton,  representing  it  as  done  in  the  interest  of  the 
southern  planters.  He  said  that  the  operations  had  been  relinquished, 
which  was  not  true.  Finally  he  withdrew  the  Bank  from  all  functions  as  a 
national  bank.  It  wanted  only  "repose;"  "abdicated  its  involuntary 
power;"  "it  will  take  its  rank  hereafter  as  a  simple  State  institution,  devoted 
exclusively  to  its  own  special  concerns." 

In  December  the  Liverpool  cotton  market  was  very  dull  and  feverish. 
The  spinners  were  alarmed  at  the  speculation  and,  anticipating  its  failure  and 
a  fall  in  price,  shortened  work  and  diminished  the  demand.  As  the  year 
1839  went  on,  the  developments  in  England  were  unfavorable.  The  crop 
failed,  there  was  great  distress  amongst  laborers,  specie  was  exported,  and 
prices  fell.  These  facts  were  all  unfavorable  to  an  extension  of  credit,  a 
revival  of  business,  and  an  improvement  in  the  price  of  cotton. 

Biddle  resigned  the  presidency  of  the  Bank  March  29,  1839.  In  his 
second  letter  to  Clayton,  in  1841,  he  says  that  the  circulation,  deposits,  and 
other  debts  then  amounted  to  $35.4  millions  while  the  specie  and  the  loans 


m 


•  2  Raguet'o  Register,  336. 


t  2  Raguet's  Register,  368. 


t  N.  Y.  "  Express"  in  55  Niles,  225. 


)02 


A  HISTORY  OF  BANKING. 


m\ 


amounted  to  $43.9  millions.  The  Committee  of  1841,  however,  say  that 
the  assets  were  already  at  that  time  to  a  large  extent  unavailable.  The  stock 
fell  from  1 16  to  in  3-4.  Thomas  Dunlap  was  elected  his  successor.  After 
his  resignation  an  account  was  rendered  by  Bevan  &  Humphreys  of  the 
cotton  operations,  which  showed  a  profit  of  $1.4  millions,  on  total  transac- 
tions of  $8.9  millions,  which  was  divided,  $800,000  to  the  operators,  and 
$600,000  for  the  Bank.  The  $800,000  was  drav/n  out  between  March  2^ih 
and  May  22A*  In  this  year  the  Bank  loaned  $1  million  to  the  State  of  Illinois. 
According  to  the  contract,  its  ten-dollar  notes  were  to  be  paid  out  on  the 
Illinois  and  Michigan  Canal.  July  19th,  it  was  allowed  by  a  special  act  of 
the  State  Legislature  to  issue  five-dollar  notes  for  the  sum  of  $2  millions, 
which  it  loaned  to  the  State. 

The  year  1839  opened  with  a  gloomy  outlook  in  the  southwest,  especially 
at  New  Orleans. t  In  the  spring  there  was  great  distress  in  Mississippi.  A 
great  deal  of  property  was  changing  hands.  The  state  of  things  was  far 
worse  than  in  1837.!  In  June  the  post-notes  of  the  Planters'  Bank,  which 
then  fell  due,  were  not  taken  up.  The  southwestern  currencies  were  falling 
to  heavier  discount.  The  banks  in  the  North  and  East  were  curtailing. 
At  Philadelphia  it  was  said  to  be  the  worst  period  since  the  panic.  Accord- 
ing to  the  news  from  England,  in  June,  there  was  scarcely  any  market  there 
for  American  securities. 

In  April,  1839,  cotton  was  advanced  one  and  a-quarter  penny  in  Liver- 
pool by  sales  on  cross  accommodation  bills. § 

In  June  the  news  from  England  was  bad.  The  money  market  was 
stringent;  the  Bank  of  England  was  losing  specie;  there  was  less  demand 
for  cotton;  and  the  mills  were  running  short  time  or  were  idle;  cotton  was 
dull  and  lower;  the  Bank  of  England  rate  was  five  and  one-half  per  cent. ; 
and  the  bills  for  the  speculative  purchases  in  March  and  April  were  coming 
due, 

A  circular  was  issued  by  S.  V.  S.  Wilder,  in  June,  attempting  to  do  more 
cleverly  and  completely  what  Ingersoll  had  tried  the  year  before.  It  seems 
that  the  latter  had  blurted  out  the  facts  of  the  arrangement  too  distinctly. 
Wilder  denied  that  the  United  States  Bank  had  anything  to  do  with  his  plan, 
which  was  false.  The  circular  stated  that  cotton,  by  the  latest  advices,  was 
dull  and  lower;  that  the  English  spinners  were  working  short  time,  in  order 
to  get  lower  prices  on  cotton,  since  the  great  bull  of  the  last  year  was  out  of 
the  market.  A  grand  combination  to  sustain  cotton  was  proposed.  Either 
the  banks  would  advance  enough  to  hold  back  the  cotton  for  three  months, 
or  all  might  consign  to  one  Liverpool  house  which  should  carry  it  until  the 
present  stock  was  worked  off.  In  a  conference  at  Philadelphia,  the  second 
plan  was  adopted,  because,  on  the  first  plan,  the  market  would  not  be 
provided  with  any  bills  of  exchange.     Advances  of  three-quarters  of  the 


*  Second  Report  of  the  Committee  of  1841 .     See  page  34$. 

X  56  Niles,  96,  114;  Raguet,  Currency  and  Banking,  157. 


t  55  Niles,  355. 
S  56  Niles,  113,293. 


COURSE  OF  THE  CR/S/S;  18)8-9. 


30} 


value,  at  fourtetMi  cents  a  pound,  were  to  be  made  on  all  that  was  sent  to 
Humphreys  &  Biddle,  who  would  "hold  on  until  prices  vigorously  rally." 
It  the  crops  should  prove  large  the  "great  and  powerful  interest"  would 
hold  back  the  first  supplies  of  it.  This  circular  was  unsigned  and  was  not 
to  be  published,  but  it  got  into  the  newspapers  and,  the  New  York  "Journal 
of  Commerce  "  having  traced  it  up  to  Wilder  and  the  leading  officers  of  the 
Bank,  the  former  published  a  vehement  denial  that  the  Bank  of  the  United 
States  had  anything  whatever  to  do  with  it.*  It  was  afterwards  stated  that 
this  circular  was  written  by  Gen.  Hamilton  of  South  Carolina.! 

July  20th,  a  meeting  at  Macon  called  a  southern  convention  to  deliberate 
on  the  cotton  circular  and  the  means  of  giving  stability  to  the  price  of  cotton. 
They  had  before  them  a  circular  from  southern  representatives  at  New  York, 
in  which  it  was  shown  that  cotton  was  a  regulator  of  the  exchanges  and  a 
standard  of  value.  It  was  resolved  that  it  was  necessary  to  combine  the 
banks  with  the  cotton  producers;  that  the  banks  of  the  South  should  take 
bills  of  lading  and  insurance  policies  and  give  post-notes  at  twelve  and 
a-half  cents  per  pound,  so  as  to  hold  the  crop  for  a  price,  the  whole  being 
consigned  to  a  few  houses  in  Liverpool  and  Havre.  Just  at  this  time  the 
"Manchester  Guardian  "  declared  that  there  was  no  market  for  the  amount 
of  manufactured  goods  which  the  machinery  could  make,  unless  the  price 
was  lowered;  that  the  advance  in  cotton  therefore  stopped  spinning.  "The 
evil  does  not  consist  in  the  high  price  of  cotton  so  much  as  in  the  general 
distrust  of  the  stability  of  that  price,  which  is  produced  by  a  knowledge  of 
the  speculative  dealing  in  the  United  States."  [in  fact  the  crop  was  short, 
and  if  there  had  been  no  speculation,  the  price  would  probably  have  been 
higher  than  it  really  was  when  it  was  believed  that  a  large  amount  was  kept 
back.  The  supply  for  the  last  half  of  the  year  was  twice  the  amount  which 
had  been  used  in  the  first  half.]  It  is  "one  of  the  most  rash  and  insane  spec- 
ulations of  modern  times."! 

Under  the  State  charter  the  Bank  paid  four  per  cent,  dividends  every 
half  year  until  July,  1839.  It  was  apparently  these  large  dividends  which 
deluded  the  small  investors,  and  made  them  cling  to  the  Bank  long  after 
men  of  affairs  knew  that  it  was  a  mere  shell.  When  it  failed  this  class  of 
investors  and  foreigners  owned  nearly  all  of  it.  Biddle  had  then  only  one 
share.  §  It  is  hardly  too  much  to  say  that  the  Bank  never  had  any  right  to 
pay  a  dividend  after  the  State  charter  was  taken. 

In  July  the  rate  for  loans  at  Philadelphia  was  fifteen  per  cent,  and 
eighteen  per  cent. ;  the  United  States  Bank  was  contracting.  Its  stock  was 
at  114.  The  Bank  was  still  trying  to  control  the  sterling  exchange;  but  at 
New  York  there  was  opposition  to  this  policy  and  a  shipment  of  specie  was 
declared  necessary.il 

At  the  end  of  August  the  money  market  in  England  was  so  stringent 


Y  . 


•  56  NU«8,  349,  »58.  t  56  Niles,  369. 

t  Investigating  Committee,  May  18,  1841. 


t  56  Niles,  351 
I  56  Niles,  337. 


304 


A  HISTORY  OF  BANKING. 


|!  .    li' 


that  there  was  almost  a  panic.  Cotton  was  a  penny  lower,  and  Jaudon  was 
in  great  distress.  A  report  reached  the  United  States  that  the  Barings  had 
announced  in  their  circular  of  August  26th  the  expectation  that  he  would 
fail.  This  was  afterwards  corrected.  They  did  not  do  this,  but  they  sent 
out  a  list  of  the  securities  which  he  had  offered  them  as  collateral  for  a  loan 
which  he  wanted.*  He  was,  however,  writing  most  earnestly  to  Hum- 
phreys &  Biddle,  demanding  money.  They  must  sacrifice  cotton  at  any 
price  in  order  to  sustain  him.  "Life  or  death  to  the  Bank  of  the  United 
States  is  the  issue."  The  Bank  at  Philadelphia  recognized  and  assumed  the 
loss  which  was  incurred,  and  urged  Bevan  &  Humphreys  to  authorize  Hum- 
phreys &  Biddle  to  sustain  Jaudon.  f 

The  notes  of  the  United  States  Bank  of  Pennsylvania  were  kept  at  par  in 
New  York  by  its  ally  there.  Hence  the  Philadelphia  brokers  used  them  as  a 
remittance.  As  the  exchange  was  against  Philadelphia,  this  must  have 
occasioned  a  loss.  In  August,  1839,  the  Bank  refused  to  keep  brokers' 
accounts  in  order  to  try  to  break  up  this  arrangement,  although  it  was  after  • 
wards  said  that  only  one  account  was  closed,  t  In  fact,  this  incident  had  no 
importance  except  as  a  symptom  of  an  approaching  crisis. 

From  the  17th  to  the  24th  of  August,  1839,  the  Bank  of  the  United  States 
sold,  in  New  York  City,  bills  on  Hottinguer  which  were  forced  on  the  market 
at  a  loss.  As  the  Bank  had  no  balance  with  him,  and  he  had  given  notice 
that  he  would  not  honor  any  drafts  unless  he  was  covered,  it  was  necessary 
to  remit  specie  to  meet  the  bills  which  were  sold.  '  was  demanded  of 
the  New  York  banks  in  order  to  make  this  exportation.  On  the  27th,  the 
checks  which  had  been  obtained  for  the  bills  sold  were  presented  in  the 
banks  at  2:30  p.  m.  with  a  peremptory  demand  for  specie,  a  notary  being 
present  to  make  the  protest.  The  purpose  was  to  compel  the  New  York 
banks  to  suspend  in  order  to  give  the  Bank  of  the  United  States  a  pretext  for 
doing  so.    The  total  amount  of  these  bills  was  seven  million  francs.  § 

September  ist,  there  was  a  great  demand  for  loans  in  New  York,  Boston, 
and  Philadelphia,  and  still  more  in  the  Southwest.  The  Philadelphia  banks 
now  had  large  amounts  of  the  southwestern  paper,  which  they  had  continued 
to  take  for  goods  but  which  they  could  not  now  collect.  They  lent  post- 
notes  to  the  merchants,  which  were  sold  in  the  other  cities,  thus  absorbing 
capital  elsewhere,  which  all  went  into  the  gulf  of  this  southwestern  debt. 
The  post-notes  of  the  Bank  of  the  United  States  were  at  eighteen  per  cent, 
discount  per  annum;  its  stock  at  104  1-2.  At  the  end  of  September  the 
United  States  Bank  ceased  to  supply  exchange,  and  the  New  York  banks 
began  to  draw.  October  1st,  it  was  reported  that  the  banks  of  New  York, 
Boston,  and  Philadelphia  had  been  moving  specie  to  and  fro. 

On  the  9th  of  October,  the  United  States  Bank  failed  on  its  home  busi- 
ness, all  the  Philadelphia  banks  being  exposed  to  a  run  on  account  of  drafts 


•  57  NUes,  277  ;  58  Niles,  7a. 


t  Biddle's  first  letter  to  Clayton,  1841. 
1 57  Niles,  119;  60  Niles,  131. 


X  56  Niles,  375,  405. 


COURSE  OF  THE  CR/S/S;  i8j8-q. 


305 


from  New  York.  On  the  following  day  some  of  the  drafts  on  Hottingiier 
came  back  protested.  Jaudoii  h.id  induced  Rothschild  to  take  them  up  for 
the  credit  of  the  h.ink,  ample  security,  as  was  then  supposed,  by  State 
and  other  stocks  being  given.* 

These  proceedings  were  ruinous  to  the  credit  of  the  Bank.  The  Com- 
mittee of  1 84 1  say  that  on  account  of  "the  general  derangement  of  affairs, 
the  suspension  of  specie  payments,  and  the  discredit  consequently  thrown 
upon  American  securities,  and  more  particularly  from  the  course  of  the 
Bank's  dealing  in  foreign  exchange,  by  drawing  bills  to  a  large  amount 
without  having  previously  provided  the  funds  for  their  payment,  and  thus 
subjecting  their  agent  in  London  to  the  necessity  of  obtaining  money  in 
haste,  in  order  to  maintain  the  credit  of  the  Rank,  it  was  no  longer  found 
possible  to  command  funds  there  upon  the  same  favorable  terms  as  before. 
And  accordingly  upon  Mr.  Jaudon's  subsequent  negotiations  for  loans,  to 
the  amount  altogether  of  $12,212,697.46,  there  is  chargeable  to  losses  the 
sum  of  $1,149,907.04,  being  for  discount,  commissions  to  foreign  bankers, 
and  other  charges;  not  including  Mr.  Jaudon's  own  commissions,  and  the 
expenses  of  the  agency  in  London." 

The  stock  of  the  Bank  fell  to  93  3-4;  its  notes  were  at  eleven  per  cent, 
discount  at  New  York.  As  soon  as  the  disturbance  produced  by  the  Bank 
was  withdrawn,  things  improved  there,  foreign  exchange  being  at  par. 

The  facts  in  regard  to  the  proceedings  of  the  Bank  of  the  United  States, 
at  this  juncture,  if  told  by  an  enemy,  might  seem  colored  by  malice,  but 
they  arc  stated  by  Towperthwaite  in  a  letter  to  Biddle,  March  23,  1841.  He 
says  that  a  new  crisis  was  anticipated  in  the  fall  of  1839,  and  "  it  was 
deemed  best  to  make  it  fall  first  upon  the  New  York  banks."  In  fact,  the 
great  Bank  had  been  vindictive  ever  since  the  resumption  of  1838.  Its 
leadership  had  been  set  aside.  The  New  York  banks  had  proceeded  with- 
out it  and  usurped  its  functions.  In  1839  it  found  itself  sinking  and  it  was 
driven  to  the  most  desperate  measures  inspired  by  malice  and  rancor.  The 
United  States  Bank  and  debtor  interest  caused  a  meeting  to  be  held  at  New 
York  as  late  as  October  23d,  in  order  to  try  to  organize  a  run   on   the 

banks,  t 

At  this  time  the  following  very  strong  criticism  and  review  of  the  pro- 
ceedings of  the  Bank  during  the  preceding  eighteen  months  appeared  in  a 
New  York  paper: 

"The  suspension  of  1837  found  it  [Bank  of  the  United  States],  as  it  was 
generally  understood,  greatly  extended  in  every  direction,  with  many  mil- 
lions due  from  the  South  and  the  West  and  from  the  insolvent  interests  here 
and  elsewhere,  with  many  other  millions  invested  in  various  internal 
improvements,  and  with  the  bonds  for  the  sale  of  the  branches  of  the  old 
Bank  for  the  most  part  uncollected,  constituting  altogether  a  large  portion  of 
its  capital  rendered  wholly  unavailable.     Hence,  as  was  believed,  the  reluct- 


i^s  f 


Am 


•  57  NUes,  97. 


t6o  Niles,  121 ;  3  GalUtin's  Writings,  404. 


20 


''/ 


^•n 


>T 


306 


A  HISTORY  OF  BANKING. 


ance  with  which,  after  resisting  to  the  utmost  the  exhortations  and  finally 
the  example  of  New  York,  in  1838,  in  resuming  specie  payment,  it  came 
at  last  into  that  measure.  But  in  order  to  do  so,  it,  even  then,  Is  reported 
to  have  been  largely  a  borrower,  and  up  to  the  moment  of  its  recent  sus- 
pension it  has  continued  the  policy  of  borrowing  and  of  extension,  in  the 
face  of  known  losses,  which  the  very  silence  observed  concerning  them  and 
the  withholding  of  all  official  reports,  served  in  some  sense  to  magnify,  and 
when  all  knew  that  a  large  amount  of  its  means  was  invested  in  incon- 
vertible securities  ant'  consequently  out  of  its  own  control." 

Probably  it  expected  by  its  policy  more  easily  to  collect  its  outstanding 
credits. 

"If  by  ari  opposite  course,  the  Bank  on  resuming  had  drawn  together 
its  scattered  resources,  and  instead  of  buying  or  advancing  on  all  sorts  of 
stocks  and  cotton,  and  extending  it^iclf  by  new  issues,  it  !iad  paid  off  its 
own  debts  and  confined  itself  to  the  legitimate  objects  ofbanking,  the  deal- 
ing in  the  regular  business  of  the  internal  exchanges,  and  discounting  safe 
mercantile  paper,  it  seems  hardly  questionable  that  not  only  the  Bank  of  the 
United  States,  but  all  the  banks.  South  and  West,  would  have  been  in  a  safe 
position;  that  the  foreign  exchanges  would  have  been  in  our  favor;  and  that 
the  vast  mischief  which  now  surrounds  us  would  have  been  avoided." 

No  doubt  political  and  financial  circumstances  have  made  its  manage- 
ment difficult,  "but  latterly  even  the  government  had  made  common  cause 
with  that  institution,  availed  itself  of  its  credit,  and  employed  It  as  an  agent 
for  disbursing  the  public  money.  But  this  very  connection,  it  may  be,  has 
rather  served  to  stimulate  than  restrain  its  issues.  Under  all  these  circum- 
stances it  ceases  to  be  matter  of  surprise  that  the  bank  has  suspended  its 
payments  and  dragged  into  its  vortex  so  large  a  number  of  other  banks  that 
were  more  or  less  connected  with  or  dependent  upon  it."* 

The  banks  of  Philadelphia  having  suspended  on  the  9th,  those  to  the 
South  and  West  suspended  as  fast  as  the  news  reached  them.  Specie  was  at 
si.N'en  per  cent,  and  seven  and  a-half^per  cent,  premium  at  Philadelphia. 
On  the  12th,  the  United  States  Bank  stock  was  at  seventy,  but  on  the  15th 
it  had  risen  to  eighty.  In  November  it  was  at  sixty-five.  The  banks  of 
Rhode  Island  suspended  but  soon  resumed;  those  of  New  Jersey  did  not 
suspend. 

In  the  month  of  October,  the  New  York  and  Philadelphia  newspapers 

.were  in  open  war  about  suspension.    The  Philadelphians  declared  that  New 

York  could  not  maintain  specie  payment;  that  the  pretense  of  it  was  false. 

and  the  merchants  all   ruined.     The  New  Yorkers  answered  that  it  was 

doubtful  if  the  Bank  of  the  United  States  was  solvent.f 

The  extracts  from  the  New  York  papers,  in  October  and  November, 
show  that  the  public  then  had  ample  reason  to  doubt  the  solvency  of  the 
United  States  Bank.     In  November  the  "  Harrisburg  Reporter"  said  that  it 


*  N.  Y.  "American,"  October  16,  1839,  in  157  Niles,  140. 


t  57  Niles.  140. 


COURSE  OF  THE  CR/S/S;  1818-Q. 


■!07 


w;is  insolvent;  in  London  its  securities  were  unsalable,  and  its  credit  was 
broken.*  > 

The  New  York  banks  were  confident  of  tlieir  ability  to  sustain  specie 
payments,  "There  is  every  reason  to  be  sure  that  New  York  will  go  on 
well."  The  "American"  said  that  the  monetary  strinf:;ency  on  both  sides 
of  the  water  was  due  to  the  borrowings  of  the  Bank  of  the  United  States; 
that  New  York  must  persevere;  that  she  would,  if  she  kept  a  sound  currency, 
become  the  center  of  home  and  foreign  trade. f  October  isth,  the  Philadel- 
phia banks  stopped  redeeming  their  fives,  having  lost  in  five  days  $is6, 000 
in  that  way.  During  1 8  ■57-8  the  banks  of  Pennsylvania  made  dividends, 
although  it  was  prohibited  in  the  charters  of  most  of  them.  After  the 
suspension  of  1839  most  of  the  banks  at  [Philadelphia  resolved  not  to  declare 
dividends  until  the  pleasure  of  the  Legislature  could  be  known. 

The  monthly  reports  of  the  United  States  Bank  t'-  the  Auditor-general 
were  suspended  from  October,  1838.  After  its  faili.ie  in  October  1839,  that 
officer  demanded  a  return,  and  those  for  thirteen  months  were  sent  all 
together  in  November  following.  It  is  alleged  in  interrogatories  put  to  the 
cashier  in  a  suit  by  Kuhn  against  the  Bank,  on  an  attachment,  that  the  latest 
one  (November,  1839),  showed  a  surplus  of  $4  millions,  and  that  it  was  so 
published  here,  but  that  a  committee  in  the  Bank  found  that  the  surplus  was 
only  $1  million;  it  was  so  sent  to  Jaudon  and  published  in  England,  and 
reprinted  here.  The  post-notes  were  reported  to  the  Auditor  $900,000  more 
than  to  Jaudon.  If  these  were  subtracted  the  surplus  would  dwindle  to 
$100,000. 

October  iith,  a  meeting  of  merchants  was  held  at  Boston  to  confer  with 
the  banks  about  an  extension  of  discounts.  A  resolution  to  suspend  pay- 
ment on  notes  of  $s  and  above  was  rejected.  At  a  bank  meeting  on  the 
17th,  it  was  resolved  that  the  banks  were  able  to  sustain  specie  payments. 
On  the  24th,  the  rate  for  first  rate  four  months  paper  was  three  per  cent,  per 
month.  The  rate  at  New  York  was  about  the  same.  All  the  safety  fund 
notes  were  discredited.  Specie  was  coming  from  all  parts  of  the  country 
and  being  exported.  On  the  23d  the  banks  of  Philadelphia  published  an 
address  to  the  public,  in  which  they  declared  that  the  suspension  of  1S37 
was  necessary  and  proper;  that  all  was  going  on  well  when  New  York 
prematurely  resumed;  that  this  forced  the  rest  to  follow;  that  Philadelphia 
had  followed  the  correct  policy  in  making  loans  to  the  South  and  South- 
west; that  the  pretended  resumption  broke  down  in  that  section  first.  They 
then  operate  on  the  prejudice  against  the  exportation  of  specie  and  against 
England,  declaring  that  the  banks  could  have  paid  specie  but  that  it  would 
have  sacrificed  the  country  around  them  to  find  means  to  buy  food  for  the 
people  of  England,  t  This  address  well  stated  one  view  of  the  situation  and 
of  the  policy  to  be  pursued.  Up  to  this  time  there  had  been  hope  and  belief 
that  the  worst  was  over  and  that  at  any  time  prosperity  might  return,  and  it 


h 


'Ik 


; 


t  I 

! 


iU 


!   f 


'\ 


•  57  NilM,   140,  209. 


t  57  NilM,  r39. 


X  57  Niks,  IS5. 


n 


|!  'i 


308 


^  H/STOR  Y  OF  BANKING. 


is  possible  that,  if  it  had  not  been  for  the  insane  policy  pursued  in  the  cotton 
region  under  the  leadership  of  the  Bank  of  the  United  States,  things  might 
have  turned  for  the  better  before  this  time;  but  the  failure  of  October,  1839, 
was  the  real  collapse  of  the  movement  which  culminated  in  the  crisis  of 
1837,  and  of  the  policy  in  respect  to  it,  which  had  now  been  followed  for 
two  years.  From  this  point  on  there  was  no  escape  from  a  complete  liquid- 
ation, which  wouLd  require  that  the  industrial  movement  should  be  brought 
almost  to  a  standstill  before  it  could  start  again. 

The  New  York  banks  resolved,  October  25th,  unanimously,  that  they 
would  maintain  specie  payments,  but  according  to  the  report  of  the  Bank 
Commissioners,  January  24,  1840,  there  was  a  contraction  of  $20  millions  in 
the  liabilities  of  the  banks,  within  ninety  days.  November  8th,  the  safety 
fund  banks  of  Western  New  York  met  at  Auburn  and  made  a  plan  for  the 
redemption  of  their  notes  at  the  State  Bank  at  Albany. 

October  22d  a  cotton  convention  was  held  at  Macon,  at  which  a  further 
and  still  more  complete  organization  was  aimed  at,  but  it  does  not  appear 
that  the  Bank  of  the  United  States  was  any  longer  a  party  to  the  enterprise. 
The  wish  at  that  convention  was  to  get  strength  enough  from  the  banks  to 
hold  on  for  a  year,  and  there  were  loud  complaints  that  consignments  had 
been  sacrificed  to  meet  sixty-day  bills.  In  November,  there  was  a  slight 
advance  in  the  price,  which  was  not  maintained,  but  the  English  mills  were 
generally  on  full  time. 

in  March,  1840,  the  New  York  "Express"  said:  "The  cotton  business 
has  entirely  changed  this  year.  Last  year  a  large  portion  of  it  was  in  the 
hands  of  speculators,  who,  in  many  instances,  with  small  means,  were  able 
by  advances  to  control  a  large  amount.  The  season  turned  disastrous  and 
swept  this  class  away.  The  facilities  that  were  afforded  by  the  southern 
banks  induced  large  shipments,  which  in  most  cases  turned  out  ruinous. 
Tlij  consequence  is  that  the  staple  is  now  left  to  its  own  intrinsic  value. 
Shippers  buy  and  export  aa  appears  most  for  their  interest.  Manufacturers 
purchase  to  meet  the  demand,  and  the  business  is  thus  perfectly  regular."* 

In  regard  to  the  last  speculations  of  the  Bank  in  cotton,  we  have  the 
report  of  the  Committee  of  1841  as  follows:  The  directors  declared, 
December  21,  1840,  that  they  had  not  known  of  the  cotton  transactions,  and 
passed  resolutions  of  "censure  and  condemnation."  "The  third  and  last 
account,  amounting  to  $5,241,042.83  [shipments  of  produce  to  the  Liverpool 
firm]  appears  on  the  books  [of  the  Bank]  as  '  Bills  on  London ;  advances 
S.  V.  S.  W.'  These  letters  stand  for  the  name  of  S.  V.  S.  Wilder  of 
New  York.  Messrs.  Humphreys  &  Biddle,  to  whom  these  consignments 
were  made,  continued  their  accounts  in  the  name  of  Bevan  &  Humphreys, 
but  without  the  knowledge  of  that  firm,  as  appears  by  Mr.  Cabot's  letter  of 
December  28,  1840.  The  result  of  these  last  shipments  was  a  loss  of 
$962,524.13.    Of  this  amount  the  sum  of  $553,908.57  was  for  excess  of 


*  58  Nites,  32. 


COURSE  OF  THE  CRISIS;  i8j8-g. 


309 


payment!;  by  Messrs.  Humphreys  &  Biddle  to  the  London  agency,  beyond 
the  proccids  of  sale,  with  interest  thereon.  The  parties  interested  claimed 
and  were  allowed  a  deduction  for  loss  on  $526,000  of  southern  funds  used  in 
the  purchase  of  cotton,  when  at  a  discount,  the  sum  of  $310,071.30;  and 
also  this  sum,  being  bankers'  commission  to  Messrs.  Humphreys  &  Biddle 
on  advances  to  Samuel  Jaudon,  agent,  $21,061.86;  making  $331,133,16,  and 
leaving  to  be  settled  by  the  parties  the  sum  of  $631,390,97." 


t 


't1i»     : 


M/f 


; «  '  'li 


S»!' 


CHAPTER  XIV.— Continued. 


§  4. — The  Banks  in  the  States;  iSjiy  to  1840. 

In  reading  this  chapter  it  should  be  borne  in  mind  that  the  decision  in 
Briscoe's  case  was  rendered  in  January,  1837. 

In  1837-8,  eleven  banks  failed  in  Massachusetts,  nearly  all  in  Boston  or 
the  immediate  neighborhood,  with  $4  millions  capital.  The  investigation 
of  the  affairs  of  these  banks  showed  that  they  had  violated  the  law  in  respect 
to  the  organization  and  management  of  banks.  "We  find  bank  directors 
indicted  for  merely  signing  a  false  return.  How  far  would  the  grand  jury 
have  to  go  should  the  fourth  section  of  the  bank  law  requiring  that  the  cap- 
ital must  be  paid  in  in  specie  before  a  bank  might  begin  business,  be  applied 
to  the  origin  of  every  bank  in  this  Commonwealth,  particularly  within  ten 
years  past?  It  is  the  gross  violation  of  this  section  which  has  been  winked 
at  by  the  Legislature  in  receiving  bank  returns,  that  has  laid  the  foundation 
of  the  worthless,  broken  banking  capital  of  Massachusetts.  The  money  has 
never  been  there,  the  capital  has  never  been  paid  in.  The  hard  earnings  of 
industry,  and  the  portions  of  widows  and  orphans  who  were  det.tived  by 
Mr.  Degrand's  'leetle  word  confidence,'  have  been  actually  paid  in  and  not 
borrowed  out  by  the  owners  of  the  stock;  but  this  constitutes  a  small  por- 
tion of  the  banking  capital.  The  bulk  of  it  has  been  made  up  of  stock  notes 
of  the  borrowers  who  got  up  the  banks,  put  into  its  vaults  bits  of  paper,  and 
then  drew  out  double  or  quadr^'ple  the  amount  in  loans.  Had  the  capital 
been  actually  paid  in,  in  confoimity  to  the  statute,  none  of  this  trouble 
would  have  happened.  *  *  *  Our  banks  were  manufactured  by  those 
who  wanted  to  borrow  all  the  fictitious  capital  they  could  create."* 

A  law  was  passed  in  Rhode  Island,  in  1837,  to  restrict  the  loans  and  dis- 
counts of  banks  to  a  percentage  of  the  capital  "  together  with  the  amount  of 
the  sums  deposited  with  or  due  from  them,  bearing  interest."     For  a  bank 


♦  Boston  "Advocate  "  in  i  Raguet's  Register,  308. 


1' 


THE  BANKS  IN  THE  STATES;  iSjj  TO  1840. 


Ill 


with  $30,000  capital,  the  percentage  was  180;  for  larger  banks  the  percent- 
age was  less,  until  for  those  having  over  $400,000  capital,  it  was  130.  A 
bank  of  $50,000  capital  was  allowed  circulation  to  the  amount  of  seventy- 
five  per  cent,  of  the  base  sum;  one  of  more  than  $400,000  capital  only 
twenty  per  cent. 

Upon  the  suspension,  the  Merchants'  Bank  of  Providence  and  the  Rhode 
Island  banks  grouped  around  it  fell  heavily  in  debt  to  the  Suffolk  Bank.  The 
president  of  the  latter  wrote  to  the  Merchants'  Bank:  "  I  hope  you  will  take 
measures  to  induce  the  banks  of  your  State  to  reduce  their  circulation  to 
their  means  of  redeeming  as  early  as  possible."  They  did  not  comply,  and 
in  September,  1838,  they  were  threatened  with  a  return  of  their  notes.  In 
December  a  new  arrangement  was  made,  and  the  amount  of  over-draft 
allowed  the  Merchants'  Bank  by  the  Suffolk  was  fixed  at  $so.ooo,  "with  the 
understanding  that,  if  the  banks  of  that  State  could  not  keep  themselves  in  a 
condition  to  meet  this  limit,  the  Suffolk  Bank  would  decline  to  receive  their 
bills."* 

No  bank  failed  in  Connecticut  in  this  period.  Legislation  was  aimed 
against  the  indebtedness  of  directors,  which  was  limited,  in  1840,  to  one- 
third  of  the  capital  for  the  whole  body  of  directors  of  any  bank. 

New  York. — Before  the  suspension  of  1837,  some  banks  in  Albany  had 
adopted  the  custom  of  buying  country  bank  notes  at  a  small  discount  and 
sending  them  home.  During  the  suspension,  the  city  banks  gave  the  country 
banks  time  for  redemption,  according  to  distance.  After  resumption,  this 
ceased.  A  voluntary  arrangement  was  then  made  by  which  time  was  given 
to  the  country  banks  to  redeem  in  New  York  funds  and  take  home  their 
issues  at  their  own  risk  and  expense,  the  city  banks  receiving  the  country 
notes  at  one-half  or  three-quarters  of  one  per  cent,  discount.  When  the 
crisis  came  on  in  the  fall  of  1839,  the  city  banks  could  not  spare  capital  for 
this  purpose,  and  the  country  notes  depreciated.  The  country  banks  then 
arranged  an  exchange  of  notes  at  Albany;  but  the  arrangement  was 
imperfect  and  unsatisfactory  because  it  did  not  include  New  York  City.  The 
Bank  Commissioners,  in  their  report  of  1840,  after  reciting  this  history,  go 
on  to  discuss  plans  for  redeeming  the  notes  at  New  York,  in  order  to  avoid 
exchange  and  produce  a  uniform  currency.  They  say :  "The  vice  of  banking 
here,  particularly  in  the  country,  has  always  been  a  tendency  to  investments 
in  accommodation  paper,  and  too  great  a  reliance  upon  credit  in  carrying  on 
the  active  operations  of  trade;  and  many  able  and  experienced  financiers 
consider  it  a  fault  of  the  system  that  its  organization  is  such  as  to  bring  the 
borrower  of  money  directly  i  i  contact  with  the  bank  which  issues  the 
currency.  That  its  effect  is  to  increase  or  diminish  the  amount  of  currency 
according  to  the  supposed  rather  than  the  real  wants  of  business,  and  that  its 
tendency  is  to  create  a  reciprocal  stimulus  between  trade  and  banking,  there 
can  be  no  doubt." 

♦  Whitney,  30. 


I, 


ill: 


:)|1 


,) 


\\\ 


« 


312 


A  HISTORY  OF  BANKING. 


m 


:;r' 


The  better  writers  on  banking  and  currency  in  this  country  from  1820  to 
1840  moved  toward  a  concurrent  opinion  similar  to  that  of  Jones-Lloyd  in 
England,  although  proceeding  as  much  from  considerations  of  profitable 
banking  as  from  care  for  the  interests  of  the  note-holder,  that  it  was 
expedient  to  separate  issue  banking  from  discount  and  deposit  banking. 

The  general  banking  law  of  New  York,  of  1838,  must  be  regarded  as  an 
outcome  of  this  train  of  reasoning  and  reflection  on  the  operation  of  banks. 
As  early  as  1831,  a  proposition  of  the  same  character  was  proposed  in 
Maryland  by  C.  F.  Mayer.* 

The  Governor  of  New  York  outlined  the  plan  and  recommended  it  in 
his  message  of  1837.  He  thought  that  it  would  be  necessary  to  pass  the  act 
by  a  vote  of  two-thirds  of  all  the  members  of  both  Houses,  because  it  might 
be  construed  as  an  act  of  incorporation  for  ail  the  associations  which  might 
subsequently  be  formed  under  it.  It  pisspi^  1,1"  Assembly,  86  to  29,  the 
democrats  generally  in  the  negative.       "he  'n  the  Senate  was  20  to 

8.  A  resolution  declaring  that  two-third.s  v,  ,  .  <  :ssary  was  defeated  in 
the  Senate.f  The  features  of  the  law,  which  bore  Jate  April  18,  1838,  are  as 
follows:  The  Comptroller  is  to  cause  circu'it.ing  notes  in  the  similitude  of 
bank  notes  to  be  engraved  and  printed,  .x  .  sign.-'  ^umbered,  and 
registered.  Any  association  of  persons  for  ttia  j^urpose  f  b  iking  who 
transfer  to  the  Comptroller  bonds  of  the  United  States,  or  cf  New  York,  or 
of  such  other  States  as  he  shall  approve,  shall  receive  from  him  an  equal 
amount,  in  blank  bank  notes.  The  stocks  are  all  to  be  or  to  be  made 
equal  to  the  New  York  five  per  cent,  bonds.  The  bank  is  to  execute  and 
sign  and  may  then  circulate  the  notes.  If  any  such  bank  fails  to  redeem 
any  of  the  notes  issued  by  it  in  lawful  money  of  the  United  States  upon  a 
lawful  demand,  the  note  may  be  protested  and  the  protest  filed  in  the  office 
of  the  Comptroller.  The  bank  is  then  given  ten  days  to  pay.  After  that 
the  Comptroller  is  to  give  notice  in  the  State  paper  that  all  the  notes  of 
that  bank  will  be  redeemed  by  him  out  of  the  trust  funds  in  his  hands  for 
that  purpose.  Interest  on  the  bonds  deposited  is  to  be  drawn  by  the  banks 
owning  them  unless  the  bonds  deposited  become,  in  the  opinion  of  the 
Comptroller,  inadequate  security  for  its  notes,  in  which  case  it  accumulates 
to  make  the  security  good.  The  banks  may  surrender  their  notes  and  take 
up  the  bonds.  Instead  of  bonds,  as  above,  bonds  and  mortgages  upon  real 
estate  in  the  State,  bearing  at  least  six  per  cent,  interest,  payable  annually  or 
semi-annually,  may  be  deposited  for  one-half  of  the  total  amount  deposited 
by  any  bank.  The  mortgages  must  be  upon  unincumbered  lands,  inde- 
pendent of  any  buildings  thereon,  and  worth  double  the  amount  of  the 
mortgage.  Nothing  in  the  act  is  to  be  construed  as  a  guarantee  by  the 
State  of  the  notes  beyond  the  application  of  the  securities  to  their  redemption. 
The  banks  are  to  pay  the  expenses  incurred  in  executing  this  act.  No  bank 
may  be  formed  under  it  with  a  capital  of  less  than  $100,000.     Each  bank 


*  a  Raguet's  Register,  400. 


t  2  Hammond,  4S0. 


uSSu&i: 


I 


THE  BANKS  IN  THE  STATES;  1S37  TO  1840. 


3^3 


shall  make  semi-annual  reports  to  the  Comptroller  of  its  affairs  under  sepa- 
rate heads  which  are  prescribed,  and  shall  be  liable  to  every  note-holder  to 
whom  it  refuses  redemption  at  the  rate  of  fourteen  per  cent,  per  annum 
from  the  time  of  refusal  until  the  time  of  payment,  by  way  of  interest,  and 
damages  besides.  No  note  for  less  than  $1,000  shall  be  issued  by  any  bank 
organized  under  this  law,  payable  at  any  other  place  than  its  banking  house. 
"No  association  of  persons  authorized  to  carry  on  the  business  of  banking 
under  this  act  shall  at  any  time,  for  the  space  of  twenty  days,  have  on  hand 
at  their  place  of  business  less  than  twelve  and  a-half  per  cent,  in  specie  on 
the  amount  of  the  bills  or  notes  in  circulation  as  money." 

As  soon  as  the  free  banking  law  was  passed  the  chance  to  carry  on 
banking  was  seized  with  avidity.  Before  the  end  of  1839,  one  hundred  and 
thirty-four  certificates  of  the  formation  of  associations  were  filed.  Seventy 
of  the  associations  commenced  business.  Also  certificates  of  three  private 
individual  banks  were  filed.  $6  millions  of  circulation  had  been  issued  on 
bonds  to  the  value  of  $7.  i  millions.  "  During  the  influx  of  this  new  medium, 
in  the  absence  of  organization  and  concert  among  the  new  banks,  it  is  not 
surprising  that  the  emission  should  become  somewhat  depreciated,  more 
especially  when  it  is  considered  how  extremely  difficult  it  has  been  to 
preserve  the  safety  fund  circulation  of  the  country  banks  from  a  like  depre- 
ciation, notwithstanding  an  organization  of  years'  standing  and  the  great 
experience  of  the  officers  of  these  institutions,  and  the  privilege  of  availing 
themselves  to  some  extent  of  the  aid  of  the  State  by  receiving  its  deposits."* 

When  this  banking  law  went  into  operation,  the  mortgages  which  were 
deposited  as  security  were  transferred  in  many  cases  to  the  associations  by 
individuals,  who  insisted  as  a  condition,  being  in  necessity,  that  accommo- 
dation loans  should  be  made  to  them  at  once  on  long  time  for  nearly  or 
quite  all  the  value  of  the  security  deposited.! 

Comptroller  Fillmore  declared,  in  1848,  that  the  act  of  1838  was  passed 
because  bank  charters  had  been  treated  as  the  spoils  of  party,  which  practice 
had  become  so  shameless  and  corrupt  that  it  could  no  longer  be  endured. 

The  question  whether  a  two-thirds  majority  had  been  requisite  to  pass 
this  law  came  before  the  Court  of  Appeals  in  1845,  and  was  decided  adversely 
to  the  constitutionality  of  the  law,  and  the  corporations  created  under  it  were 
declared  null; J  but  this  decision  was  reversed  a  year  later. §  In  a  similar 
case,  under  a  law  of  1837,  in  Michigan,  subject  to  a  similar  constitutional 
restriction,  the  decision  was  that  the  law  was  invalid  for  lack  of  a  two-thirds 
vote.  II 

Among  the  banking  curiosities  of  this  period  may  be  mentioned  the 
following:  In  May,  1837,  four  persons  were  arrested  in  New  York  City,  on 
suspicion  of  being  counterfeiters.  They  were  at  work  in  an  attic,  printing 
notes  of  the  Ottawa  Bank  of  Montreal.     They  were  indignant  at  their  arrest. 


V'} 


I'  n 


\ 


*  Comptroller's  Report,  1840. 

{ 1  Denio,  380. 


t  Bank  Commissioners,  1841. 


Denio,  9. 


I  Douglas,  3; I. 


M 


t. 


'. 


<Ri 


W: 

1 

, 

i 

' 

Ii  i 

1 

f 


3'4 


W  HISTORY  OF  BANKING. 


claiming  to  be  a  true  bank.  One  was  president,  another  cashier,  etc.  They 
had  $20,000  in  notes  and  $800  in  silver,  and  explained  that  it  was  cheaper  to 
get  their  notes  printed  in  New  York.  They  were  discharged  because  they 
had  violated  no  law.* 

Virginia  was  one  of  the  States  in  which  an  extra  session  of  the 
Legislature  was  called  as  soon  as  the  suspension  of  specie  payments  took 
place.  A  stay  law  was  adopted  June  22,  1837,  providing  for  a  stay  unless 
bank  notes  were  received  in  payment.  By  an  act  of  April  2,  18^8,  it  was 
extended  until  April  i,  1839,  and  later  there  were  further  extensions  until 
February  i,  1841.  June  24,  1837,  an  act  was  passed  for  the  relief  of  the 
banks,  suspending  all  the  penalties  of  non-redemption. f 

A  characteristic  of  the  Virginia  legislation  was,  that  the  laws  for  the  relief 
of  debtors  and  of  the  banks  were  repeatedly  extended  for  short  periods,  as  if 
they  were  enacted  reluctantly  and  with  a  hope  that  the  necessity  for  them 
would  soon  pass  away. 

The  relief  act  was  continued  by  an  act  of  February  20th  following,  and 
later  in  the  session  still  further  extended  until  the  end  of  the  session ;  and  the 
act  to  increase  the  capitals  of  the  three  old  banks  was  suspended  until  April 
I,  1839.  April  2,  1838,  the  penalties  on  suspension  were  further  suspended 
and  the  banks  were  allowed  to  issue  one's  and  two's  to  the  amount  of  four 
percent,  on  their  capital  until  April  1,  1839.  These  small  notes,  however, 
must  be  redeemed  under  a  penalty  of  twenty-five  per  cent,  damages.  On 
the  following  day,  severe  penalties  were  imposed  on  savings  banks,  firms, 
and  individuals  for  issuing  notes  under  $5,  all  of  which  must  be  with- 
drawn. 

The  State  subscribed  to  4,500  shares  of  the  Exchange  Bank,  March  19, 
1839,  by  ordering  the  Treasurer  to  borrow  the  required  amount  on  certificates 
of  indebtedness  having  twenty  years  to  run.  Another  loan  was  also  to  be 
contracted  to  pay  the  subscription  to  the  Northwestern  Bank.  April  4,  1839, 
the  Kenawha  Bank  was  chartered.  On  the  same  day  the  banks  were 
further  relieved  from  forfeitures  and  penalties  for  suspension,  and  time  was 
given  to  the  Farmers'  Bank,  the  Valley  Bank,  and  the  Bank  of  Virginia  to 
accept  the  acts  increasing  their  capital,  and  this  act.  All  the  old  stipulations 
are  rehearsed  as  if  nothing  had  been  learned  in  two  years.  April  loth,  the 
limitations  on  the  debts  of  banks  to  twice  their  capital  were  suspended  until 
January  i,  1840. 

At  the  next  session,  December  i  ith,  all  the  penalties  of  suspension  were 
further  postponed  until  March  ist,  but  as  a  condition  the  power  was  reserved 
to  the  State  to  modify  existing  charters.  Other  acts  followed  during  the 
winter,  so  that  at  last  the  penalties  and  the  prohibition  of  small  notes  stood 
postponed  until  April  i,  1841. 

Banks  of  the  State  and  Bank  Wrecking. — When  a  State  borrows 
capital  and  lends  it  to  a  bank,  the  taxpayers  incur  the  risks  and  obligations 


*  ;2  Niles,  164. 


t  The  acts  of  the  extra  session  have  not  been  accessible. 


\i\ 


i;  v 


THE  BANKS  IN  THE  STATES;  1837  TO  1840. 


IIS 


of  stockhoUiers.  The  interests  of  stockhokiers  ;ire  ;int;igonistic  to  those  both 
of  depositors  ;ind  borrowers,  while  the  interests  of  the  two  latter  may  be 
antagonistic  to  each  other.  In  strong,  sound,  and  well-conducted  banks 
these  interests  come  to  harmony,  and  illustrate  well  the  true  relation 
between  social  antagonisms  and  social  harmonies.  It  is  the  interest  of 
depositors  that  the  bank  shall  be  as  strong  as  possible,  even  to  a  degree 
which  would  make  it  impossible  that  it  should  gain  anything.  It  is  the 
interest  of  the  stockholders  to  make  the  borrowers  pay  as  much  as  possible 
and  to  pay  to  the  depositors  nothing.  It  is  the  interest  of  the  borrowers 
that  the  bank  should  fail,  since  they  could  then  buy  its  obligations  at  a  dis- 
count and  pay  their  own  debts  to  the  bank  with  them.  The  debtor  interest, 
so  soon  as  the  high  and  correct  relations  of  sound  banking  and  currency 
operations  are  abandoned,  is  a  bank-wrecking,  currency-debasing  interest. 
It  is  these  facts  which  make  the  play  of  interests  through  and  around  a  bank 
so  interesting.  The  strongest  currents  of  interest  there  are  in  the  economic 
organization  run  through  it.  The  financial  machinery,  of  which  banks  are 
one  of  the  most  important  parts,  keeps  all  the  parts  of  the  industrial  organi- 
zation in  due  correlation,  discipline,  and  order.  This  is  why  the  coercion 
of  the  financial  system  produces,  upon  occasion,  so  much  irritation;  it  is 
also  the  reason  why  the  banks,  if  they  fail  of  their  function,  do  so  much 
mischief. 

The  great  Banks  of  the  States  illustrate  the  truth  of  all  these  remarks. 
The  debtors  and  taxpayers  were  at  war.  The  latter  were  generally  opposed 
to  the  bank  schemes  when  they  were  first  proposed,  but  were  sometimes 
deluded  into  acquiescence  by  the  hope  of  profits  which  would  do  away  with 
the  necessity  for  taxation.  In  time,  when  a  great  body  of  debtors  had  been 
formed  around  a  bank,  and  when  a  large  group  of  politician  bankers  had 
come  into  existence,  the  Bank  of  the  State  became  a  formidable  political 
power.  Two  factions  were  then  formed.  One  wanted  to  make  the  bank 
profitable.  The  other  wanted  to  use  it  for  "higher"  purposes;  to  "develop 
resources,"  to  "accommodate,"  to  "give  equal  facilities,"  etc.  This  latter 
series  of  hollow  and  high  sounding  phrases  meant  that  it  was  to  be  sacrificed 
to  its  debtors.  When  crises  arose,  "relief"  was  called  for,  which  always 
meant  wrecking  the  bank  that  the  debtors  might  be  relieved  from  their 
obligations  to  it.  Politicians  sought  popularity  by  bringing  about  that  result. 
All  these  measures  involved  oppression  to  the  taxpayers,  but  taxpayers  are 
the  one  group  who  can  be  oppressed  without  exciting  sympathy  and  almost 
with  impunity.  When  the  whole  folly  was  over,  they  still  had  the  bonds  to 
pay,  for  the  bonds  were  extant  somewhere  bearing  the  seal  of  the  State. 

If  the  taxes  were  repealed,  and  the  State  tried  to  live  on  the  bank,  per- 
haps at  the  same  time  with  all  the  preceding — loading  it  up  with  payments 
for  interest  on  the  debt,  for  "education,"  for  "internal  improvements,"  etc. 
— the  ruin  was  manifolded  and  hastened.  As  the  president  of  the  Bank  of 
Tennessee  set  forth  to  the  Legislature  in  1845,  they  could  not  expect  to  live 
on  the  bank  and  plunder  it  too. 


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A  HISTORY  OF  BANKING. 


i 


All  the  Bank  of  the  State  schemes  rested  upon  a  notion  of  the  "credit" 
of  the  State  as  a  metaphysical  entity  which  could  be  called  upon  to  do  the 
work  of  capital,  although  capital  cannot  be  produced  without  labor  and  fru- 
gality. This  introduction  into  finance  of  the  political  glamour  which  sur- 
rounds the  "State,"  and  which  has  done  so  much  mischief  in  politics,  was 
a  multiplication  of  evils.  That  there  may  be  "psychological  elements"  in 
finance  is  true  enough,  but  it  is  well  to  analyze  them  rigorously  when  recog- 
nizing their  existence.  Confidence  operations  and  swindles  of  all  kinds 
would  have  comparatively  little  chance,  if  it  were  not  for  the  psychological 
element,  and  it  does  not  appear  that  that  element  has  any  place  except 
amongst  the  dangerous  delusions.  As  to  the  State  and  its  credit  we  can 
define  it  rigorously.  The  State  can  tax  its  subjects,  and  can  deliver  the 
product  to  those  who  have  acquired  a  right  to  it  under  such  contract  as  may 
be  made.  The  State  can  promise  to  do  this,  may  be  believed,  and  acts  may 
follow  which  are  beneficial  according  to  the  plan  which  was  the  motive 
of  the  State's  promise.  This  is  the  nature  and  limit  of  the  credit  of  the  State. 
The  Bank  of  the  State  schemes  assumed  that  the  prestige  of  the  "State" 
could  be  coined  into  food  and  clothes;  that  the  imposing  attributes  of  political 
power  could  do  the  work  of  an  actual  development  of  labor  into  product; 
and  that,  if  the  State  talked  about  what  it  would  do,  never  meaning  to  do  it, 
all  the  same  results  could  be  obtained  as  if  it  did  it.  In  politics  we  are  very 
familiar  with  the  notion  that  "resolutions"  are  effective  social  and  political 
forces.  They  are  used  to  make  one  set  of  people  believe  that  they  are 
about  to  have  their  wishes  gratified  while,  at  the  same  time,  those  who 
seem  to  be  committed  by  the  resolutions  to  some  irksome  responsibility 
are  reassured  by  being  told  that  they  will  not  really  have  to  do  anything. 
Of  course  somebody  is  duped.  The  Banks  of  the  States  were  attempts  to 
transfer  this  method  of  operation  to  finance,  but  when  capital  is  at  stake  the 
fact  that  somebody  has  Ijeen  duped  means  that  a  vulgar  crime  has  been 
committed.  The  most  far-reaching  vice  in  all  these  bank  schemes  was  that 
they  led  the  people  to  believe  that  the  methods  of  a  "boom  "  could  be  suc- 
cessfully employed  in  the  place  of  the  methods  of  thrift,  and  their  most  far- 
reaching  corruption  and  demoralization  lay  in  the  fact  that,  in  practice,  they 
only  offered  a  chance  for  a  favored  clique  to  win  at  the  expense  of  the 
community. 

To  return  for  a  moment  to  the  antagonisms  of  the  groups  which  have 
relations  through  a  bank,  it  should  be  added  that  in  stock  banks  which  were 
formed  with  stock  notes  and  were  run  for  paper-mongering,  the  stock- 
holder-debtors were  the  worst  bank-wreckers  of  all.  When  they  had  used 
their  bank  to  get  possession  of  capital,  often  the  best  thing  they  could  do 
with  it  was  to  ruin  it.  The  greater  the  depreciation  of  its  notes  the  more 
lucrative  the  traffic  in  those  notes  for  the  bank  itself.  When  the  notes  had 
been  bought  up  and  the  debts  to  the  bank  paid  with  them,  the  operation 
had  raised  their  value.  They  were  then  put  out  again  at  a  distance  and  the 
operation  repeated.     When  the  reputation  of  the  bank  was  utterly  lost,  the 


pimyi(iiiit«iHrH.ir'»ii  rm  ijaMMi 


THE  BANKS  IN  THE  STATES;  1837  TO  1840. 


3<7 


stockholders   paid   their  debts  to  it  with  their  stock  at  par,  slipped  out, 
founded  another  bank  and  began  again. 

Georgia.— The  Marine  and  Fire  Insurance  Bank  was  forbidden, December 
2),  1817,  any  longer  to  do  banking  unless  it  shouJd  renounce  insurance,  and 
agree  to  pay  the  note-holders  ten  per  cent,  damages  in  case  of  non-redemption. 
The  next  day  the  Central  Bank  was  ordered  to  borrow  for  the  State 
$72s,ooo  with  which  to  meet  the  expenses  of  1837.  December  26th,  the 
Bank  of  Brunswick  was  allowed  to  increase  its  capital  to  any  amount  which 
it  should  expend  on  the  Brunswick  and  Florida  railroad,  not  to  exceed 
$3  millions.  At  the  same  time  the  Central  Bank  was  authorized  to  borrow 
$150,000,  "to  carry  out  their  distributions  to  the  several  counties  not  yet 
provided  for." 

it  was  also  enacted  that  no  bank  should  issue  any  note  payable  otherwise 
than  in  gold  or  silver,  upon  which  the  Supreme  Court  of  the  State  after- 
wards decided  that  a  certificate  of  deposit  payable  "in  current  funds"  was 
unlawful.* 

A  free  banking  act,  like  that  of  New  York,  was  enacted  December  26, 
1838.  D:  mber  28th,  the  Central  Bank  was  directed  to  extend  the  loan 
contracted  by  it  the  year  before,  or  to  borrow  $600,000  for  State  expenses. 
Its  charter  was  extended  until  i8so. 

The  charter  of  the  Central  Bank  limited  its  issue  to  the  amount  of  its 
capital,  but  an  act  of  December  21,  1839,  authorized  it  to  issue  twice  the 
amount  of  its  capital.  It  need  not  pay  specie  to  the  agent  of  any  suspended 
bank.  The  stocks  of  the  State  in  the  Bank  of  Augusta,  Planters'  Bank,  Bank 
of  the  State  of  Georgia,  and  Darien  Bank  were  ordered  to  be  sold  for  not 
less  than  par  and  the  proceeds  to  be  put  in  the  capital  of  this  bank.  An 
appropriation  act  of  the  same  day  ordered  this  bank  to  put  to  the  credit  of 
the  Treasurer  enough  to  enable  him  to  meet  the  warrants  on  him,  "charging 
the  same  to  the  capital  stock  of  said  bank,"  and  to  furnish  him  with  its 
own  notes  or  current  notes  with  which  he  might  pay  the  current  demands 
on  him.  December  23d,  no  bank  officer  of  a  suspended  bank  might  sell  any 
bill  of  exchange  payable  within  the  United  States  after  March  i,  1840,  for 
more  than  two  per  cent,  premium,  under  penalty  of  imprisonment  for 
between  one  and  four  years.  This  was  repealed  a  year  later.  Banks  were 
also  ordered  to  report  the  indebtedness  of  directors  and  stockholders. 

The  Central  Bank  was  ordered,  December  19,  1840,  to  pay  the  scrip 
issued  by  the  Western  and  Arlington  railroad,  except  such  as  was  made 
payable  in  State  bonds.  December  i8th,  all  the  banks  were  ordered  to 
resume  January  i,  1841,  or  their  charters  would  be  annulled.  Also,  if  they 
failed  to  do  so,  their  notes  might  no  longer  be  received  by  the  State 
Treasurer  or  the  Central  Bank,  the  notes  of  the  latter  alone  being  receivable 
for  dues  to  the  State  and  to  itself.  This  act  was  held  to  have  condoned 
suspension  and  saved  the  charters.! 


*  21  Georgia,  297. 


t  I  Kelly,  27. 


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//  HISTORY  OF  BANKING, 


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I    : 


Florida.— In  tlu-  Constitution,  which  was  framed  in  1838,  it  was  provided 
thiit  no  person  should  be  eligible  to  the  otlke  of  Governor,  Senator  or  Repre- 
sentative while  he  was  an  officer  of  a  bank,  or  for  a  year  after.  No  bank 
charter  or  other  act  of  incorporation  was  to  be  granted  for  more  than  twenty 
years,  and  no  bank  charter  ever  to  be  extended.  An  article  was  inserted 
limiting  at  length  the  business  which  a  bank  might  do.  No  bank  was  to 
have  a  capital  of  less  than  $ioo,cxx),  consisting  of  specie  actually  paid  in,  nor 
borrow  any  addition  to  its  capital,  nor  loan  on  stock,  nor  owe  more  than 
double  its  capital  stock;  nor  make  a  note  or  security  of  any  kind  for  a  smaller 
sum  than  $s.  which  restriction  the  Legislature  might  raise  to  $20;  nor  pay 
more  than  ten  per  cent,  dividends;  any  greater  profits  to  be  retained  as  a 
surplus;  the  stockholders  were  to  be  individually  liable,  upon  dissolution, 
expiration,  or  forfeiture  of  the  charter;  banks  were  to  be  inspected  by  a 
Commissioner  at  least  once  a  year;  and  to  make  quarterly  returns  of  their 
condition  to  the  Governor.  "The  General  Assembly  shall  not  pledge  the 
faith  and  credit  of  the  State  to  raise  funds  in  aid  of  any  corporation  whatso- 
ever." 

The  District  Attorneys  were  authorized  and  directed,  March  4,  1839,  to 
secure  a  forfeiture  of  banking  charters,  where  forfeiture  had  been  incurred, 
by  non-user  or  otherwise. 

The  people  of  Florida  now  repented  of  their  bank  enterprises.  The  next 
thing  to  do  was  to  throw  the  loss  and  blame  on  somebody  else,  and  they 
set  about  it  with  a  naivete  equalled  only  by  that  with  which  they  had 
plunged  into  banking. 

The  Committee  on  the  Judiciary,  in  1840,  raised  the  question  of  the 
validity  of  all  the  acts  of  incorporation  which  had  been  enacted  by  the 
Territorial  Legislature.  It  gave  a  history  of  the  legal  question  on  this  point. 
Kent,  Binney,  Peter  Jay,  and  Webster  had  affirmed  that  the  Territorial 
Legislature  had  such  power.*  The  banks  had  already  obtained  from  the 
Territorial  government  and  issued  $3.9  millions  guaranteed  bonds,  and  they 
claimed  to  be  entitled  of  right  to  $s.6  millions  more.  The  total  population 
of  the  Territory  in  1830  was  34,730;  in  1840,  54,477. 

The  charter  of  the  Union  Bank,  in  1833,  as  first  passed,  contained  a 
clause  that  it  should  not  be  in  force  until  approved  by  Congress.  The 
Governor  vetoed  it  until  that  provision  was  stricken  out.  This  Committee 
of  1840  turn  the  matter  in  the  other  light,  and  claim  that  the  people  in  the 
Territory  are  entitled  to  the  protection  of  Congress.  They  propose  resolu- 
tions that  the  Territory  has  no  power  to  charter  banks  or  to  issue  bonds  to 
or  for  them,  and  that  the  pledge  of  the  faith  of  the  Territory  is  null  and  void. 
They  refer  very  guardedly  to  repudiation,  which  had  not  yet  been  openly 
discussed  anywhere,  although  their  argument  led  up  to  it;  but  they  state 
their  purpose  to  be  to  prevent  the  issue  of  any  more  bonds  to  the  banks,  t 

*  The  Supreme  Court  of  Louisiana  afTjrmed  the  power  of  the  Territory  of  Orleans  to  incorporate  a  Navigation  Company. 
(11  Martin,  309,  1822).      See  pages  s),  60,  248. 
t  Treasury  Report,  March  3,  1841. 


f 


iA: 


THE  BANKS  IN  THE  SVATES;  18^7  TO  1840. 


319 


The  Governor,  in  his  messiigc  of  1840,  uttered  the  earliest  and  most 
barn-faced  defense  of  repudiation  to  be  found  in  the  literature  of  that  subject. 
"So  far  from  there  being  bad  faith  or  a  want  of  honor  or  honesty  in  repu- 
diating these  bonds,  it  is  entirely  consistent  with  good  faith  thus  to  deal  with 
them.  They  were  obtained  through  a  legislation  partial  and  unjust.  What 
righ  '    a    few    hundred     stockholders    to    make  the    whole    people 

tribi  lo  their  schemes  of  moneyed  aggrandizement  ?  Why  should  the 
holders  of  these  instruments  be  longer  deceived  ?  They  possess  bonds  which 
they  never  can  collect  from  the  Territory-  It  is  proper  they  should  distinctly 
understand  this  truth.  It  is  to  their  interest  to  take  the  security  which  the 
bonds  and  mortgages  of  individuals  afford  and  relinquish  'the  moonshine" 
in  the  shape  of  Territorial  faith,  which  when  they  attempt  to  touch,  will 
elude  the  grasp." 

Default  was  made  on  the  interest  of  the  bonds  which  had  been  issued 
to  the  Bank  of  Pensacola,  in  January  and  July,  1840.  The  agent  of  the  Bank 
of  the  United  States  in  London  paid  the  amount,  $30,000,  to  save,  as  he  said, 
the  honor  of  the  Territory.  The  United  States  Bank  clique  formed  the 
Pensacola  Association  which  took  these  bonds.  They  sold  them,  agreeing 
to  pay  the  interest  in  London.  Governor  Call,  in  his  message  of  184:?, 
described  this  transaction  sarcastically,  saying  that  Jaudon  was  one  of  tho^e 
who  '  fe  responsible  on  the  endorsement,  and  hence  that  he  was  guarding 
his  'lonor,  not  that  of  the  Territory.     He  went  on  to  say  that  the  bank, 

inst  building  a  railroad,  as  it  was  bound  to  do  in  consideration  of  the 

bonds,  had  removed  and  sold  the  materials  for  the  railroad  to  the  value  of 
I  nearly  $275,000.     He  ended  by  proposing  that  another  bank  should  be 
founded  on  a  specie  basis. 

The  Union  Bank  petitioned  the  Legislature,  in  1841,  for  permission  to 
sell  below  par  704  territorial  bonds  which  it  held.  The  Committee  on  Banks 
reported  favorably,  connecting  the  concession  with  proposals  for  reorganizing 
the  bank  so  as  to  separate  the  Loan  Office  from  the  bank.  The  Legislature 
peremptorily  refused  the  petition. 

The  Bank  of  Pensacola  became  extinct  in  1842.  Its  paper  ceased  to 
circulate;  its  assets  had  either  been  squandered  or  removed  from  Florida. 
In  the  same  year  the  Union  Bank  ceased  to  pay  the  interest  on  the  bonds 
issued  to  it.  Its  circulation  had  been  reduced  to  $92,000;  but  was  at  two  or 
three  for  one  in  specie.  The  Life  and  Trust  Company's  notes  were  still 
worse,  but  there  were  not  many  of  them.  It  returned  the  one  hundred  and 
fifty  bonds  which  it  held.  The  Governor  hoped  that  it  would  retire  all  the 
bonds  issued  for  it. 

Alabama. — The  Bank  of  the  State  and  its  branches  were  authorized, 
June  22,  1837,  to  issue  notes  "of  less  denomination  than  $i."  These  banks 
were  not  to  issue  any  notes  under  $5  nor  receive  any  such,  except  their 
own, — that  is,  none  from  out  of  the  State.  June  30th,  an  act  was  passed 
with  a  preamble:  "Whereas  the  Bank  of  the  State  of  Alabama  and  its  sev- 
eral branches  have  recently  suspended  specie  payments,  and  whereas  it  is 


)  »•'' 


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//  HISTORY  OF  BANKING. 


believed  that  said  suspension  has  been  produced  by  causes  beyond  the  con- 
trol of  the  president  and  directors  of  vSaid  banks  in  the  exercise  of  ordinary 
prudence  and  caution;" — the  suspension  was  therefore  approved  and  sanc- 
tioned and  the  laws  ajijainst  it  were  suspended.  All  debts  to  the  banks 
were  divided  into  three  installments,  twenty-live  per  cent,  to  be  paid 
between  March  and  Juno  of  iSiS,  thirty-seven  and  a-half  per  cent,  between 
March  and  June  of  iS-?t),  and  the  remainder  between  March  and  June,  1840, 
with  interest  at  eij^ht  per  cent. ;  but  every  debtor  who  has  $2,cxk)  so 
extended  shall  have  no  accommodation  until  he  pays,  and  he  who  owes  less 
than  $2,000  may  apply  only  for  the  ditTerence  between  his  debt  and  §2,000 
in  the  way  of  further  loan.  The  banks  are  to  require  new  security.  Debts 
on  foreign  bills  of  exchange  are  excluded.  The  Bank  of  Mobile  and  the 
Planters  and  Merchants'  Bank  are  allowed  to  suspend  until  June  is,  1S40, 
unless  the  State  Bank  resumes  sooner,  and  provided  that  they  accept  this 
act  and  the  other  acts  of  this  session ;  otherwise,  forfeiture.  The  Bank  of 
Mobile,  when  it  resumes,  must  withdraw  all  notes  under  §s.  All  the  banks 
in  the  State  are  required  to  buy,  before  July  i,  1838,  specie  to  the  amount  of 
one-eighth  of  the  capital;  within  the  next  year,  one-eighth  more;  within 
the  next  year  one-lirth;aiul  within  the  fi)urth  year  one-quarter.  This  much 
specie  they  must  have  on  hand  and  keep  it.  The  Governor,  Treasurer, 
Comptroller,  and  President  of  the  Bank  of  the  State  are  directed  to  issue 
six  per  cent.  State  bonds  at  two.  four,  and  six  years,  in  equal  divisions,  to 
the  amount  of  $s  millions;  $1  million  to  be  deposited  in  the  State  Bank  at 
Tuscaloosa,  and  $1  million  in  each  of  the  branches,  to  be  sold  when  it  may 
be  done  at  par,  in  aid  of  the  capital  of  the  banks,  to  the  extent  of  one-half 
the  amount  for  specie;  the  other  half  to  be  deposited  in  banks  in  New  York. 
The  note  issues  arc  to  be  kept  up  to  the  amount  of  the  capital  and  these 
bonds  together.  In  the  apportionment  of  loans  regard  is  to  be  had  to  the 
population  of  the  counties.  The  banks  are  to  discount  "transaction  notes" 
in  payment  of  debts  to  the  banks  until  March  ist,  at  seven  per  cent.,  not 
more  than  $2,000  to  one  borrower,  with  two  good  sureties,  payable  in 
one,  two,  and  three  years.  The  annual  payments  on  these  debts  are 
to  go  to  cancel  the  short  bonds;  the  faith  and  credit  of  the  State  are 
pledged  for  the  increased  circulation.  Every  mortgage  under  this  act  is 
to  contain  a  power  of  sale,  and  a  default  on  one  installment  makes  the 
whole  due. 

This  act  entailed  more  trouble  and  misery  on  the  State  than  any  other 
that  was  passed  before  the  civil  war.      It  was  called  the  "  Extension  Law." 

The  Commissioners  to  examine  the  Bank  of  the  State,  in  1837,  reported 
that  they  could  not  balance  the  account  of  bills  of  exchange,  the  vouchers 
being  in  confusion,  part  of  them  in  old  receipt  books  of  the  bank  attorneys 
since  1826.  They  could  not  find  out  the  amount  of  bad  debts,  but  thought 
it  larger  than  had  been  reported;  they  had  not  had  time  to  examine  the 
account  of  notes  discounted,  but  had  no  doubt  that  it  was  in  the  same  con- 
dition as  that  of  the  bills  of  exchange.     In  the  following  year  the  branches 


THE  BANKS  IN  THE  STATES;  iSjj  TO  1840. 


}2l 


were  quarreling  with  each  other,  being  almost  entirely  independent  of  each 
other,  and  not  controlled  by  any  central  authority. 

The  Mobile  branch  was  authorized,  December  2},  1837,  to  increase  its 
issues  one-fourth  more  than  was  allowed  by  the  act  legalizing  suspension ; 
the  increase  to  be  used  in  advances  on  cotton  at  not  more  than  thrcc-f(nirths 
of  its  value.*  On  the  same  day  the  State  officers  were  authorized  to  issue 
State  bonds  for  $2.s  millions,  in  sterling,  at  five  per  cent.,  for  twenty  years, 
to  be  sold  for  specie;  the  proceeds  to  be  deposited  in  the  Bank  of  the  State 
and  branches,  in  equal  shares,  in  aid  of  the  capital.  On  the  same  day,  also, 
a  limit  was  set  to  the  indebtedness  which  the  president  or  any  director 
might  be  under  to  the  branch  of  which  he  was  an  officer.  Anyone  who 
owed  any  branch  $3s,o(X}  was  ineligible  as  a  director,  and  an  oath  must  be 
taken  by  every  candidate.  Three  Commissioners  were  to  be  appointed, 
in  January,  i8j8,  and  annually  thereafter  to  visit  the  Bank  of  the  State  and 
its  branches  twice  a  year.  The  president  of  each  branch  was  to  make 
monthly  reports  to  the  Comptroller,  who  was  to  publish  them.  The  pro- 
vision for  Commissioners  was  repealed  at  the  next  session. 

The  report  from  Mobile,  September  28,  1838,  was  as  follows:  "The  State 
Bank  and  its  branches,  it  is  said,  are  to  have  a  meeting  on  the  ist  October, 
and  if  the  Tuscaloosa  Bank  can  be  made  to  give  up  her  absurd  plan  of 
advancing  on  cotton, f  and  come  into  the  measure  of  resumption,  but  little 
notice  will  be  taken  of  the  two  banks  in  the  northern  part  of  the  State.  We 
think  everything  looks  fair  for  resumption,  and  on  Monday  next  we  shall 
get  clear  of  shinplasters."  "If  the  thing  [resumption]  is  practicable,  why 
are  they  [the  other  banks]  to  be  deterred  from  the  step  by  the  injurious  and 
mischievous  speculations  into  which  the  Tuscaloosa  branch  chooses  to  enter  .^ 
Are  the  people  forever  to  be  oppressed  and  cursed  with  a  depreciated  paper, 
to  enable  bank  directors  and  their  favorites  to  job  in  cotton  and  fatten  on 
bmk  agencies?"! 

"Stripped  of  all  disguise,  we  ask,  what  is  the  proposition  made  to  a 
sensible  public  ?  It  is  that  the  people  at  large  shall  continue  to  suffer  the 
dishonor,  the  embarrassments  and  positive  losses  of  a  depreciated  currency, 
in  order  that  the  debtors  to  the  banks  may  make  use  of  that  currency  to  pay 
their  debts.  It  is  to  tax  'he  solvent,  and  enact  a  stop-law  in  favor  of  the 
embarrassed  and  insolvent — it  is  gross  favoritism — to  those  to  whose 
imprudences  the  State  is  indebted  for  its  afflictions,  at  the  expense  of  rank 
injustice  to  those  who  have  not  been  seduced  into  engagements  totally 
beyond  their  power  to  meet."§ 

It  was  required,  February  i,  1839,  that  the  cashiers  of  the  Bank  of  the 
State  and  branches  should  report  to  each  Legislature  the  indebtedness  of  the 
president,  directors,  and  members  of  the  Legislature,  to  each  bank,  and  also 
a  list  of  debtors'  endorsers,  and  amounts  of  debt,  by  counties.     These  laws 


lv  ■ 


t   ii 


«  S«  page  ay8. 
21 


+  Sm  |Mge  297.  X  1  Raguet'l  RegUlcr,  251. 

J  The  Mobile  "  Register,"  in  1  R.inuet's  Register,  349.    November,  1838. 


\ 


.IS 


w — r 


'■{    i 


iv; 


A  HISTORY  OF  BANK/KG. 


Sh    '  't 


rf 


i  i 


ll)  ilH 


;     !  " 


U 


may  he  taken  as  evidence  that  these  banks  were  in  the  hands  of  cliques 
consisting  of  their  officers  and  leading  members  of  the  Legislature. 

The  banks  of  the  State  resumed  January  7,  1839,  but  the  Mobile  branch 
was  forced  to  suspend  again  February  2d,  having  paid  out  $217,987  in  specie, 
besides  checks  on  New  York  and  New  Orleans  for  half  a  million.*  February 
2d,  it  was  enacted  that  the  Bank  of  the  State  and  branches  should  take  for 
debts  all  bank  and  post-notes  which  had  been  issued  by  them,  and  they 
were  forbidden  to  take  interest  in  advance  on  loans  under  the  act  legalizing 
suspension.  They  were  also  ordered  to  require,  on  payment  of  the  install- 
ments of  the  extended  debt,  only  such  amounts  as  the  condition  of  the  bank 
might  compel  them  to  call  for.  Those  debtors  who  have  not  paid  the  first 
installment  of  the  extended  debt  are  allowed  still  to  do  so,  and  to  give  notes 
with  security  for  the  other  installments  to  be  paid  as  provided  in  the  extension 
law.  A  Board  of  Control  to  govern  the  Bank  of  the  State  and  branches  was 
also  constituted  the  same  day,  to  consist  of  the  Governor  and  the  presidents 
of  the  bank  and  branches.  It  was  now  provided  further  that  ^aper  not 
having  more  than  one  hundred  and  twenty  days  to  run  might  be  .-discounted 
for  persons  who  had  taken  the  extension ;  but  the  proceeds  were  to  be 
applied  on  the  extended  debt.  The  banks  were  directed  to  settle  with 
their  collection  attorneys  three  times  per  year.  Any  president  or  director 
who  was  under  protest  for  ten  days  was  to  vacate  his  place.  The  president 
and  directors  were  made  exempt  from  "working  on  the  roads"  and  from 
jury  duty.  No  corporation  might  tax  the  Bank  of  the  State  or  its  branches. 
On  the  same  day  it  was  further  enacted  that  any  one  who  issued  currency 
without  authority,  or  signed  or  passed  the  same,  should  be  subject  to  a  fine 
of  not  less  than  $100  nor  more  than  $soo.  Any  partner  or  stockholder 
was  made  liable  to  the  note-holder.  Passing  a  note  was  construed  as  en- 
dorsing it. 

The  Commissioners  to  examine  the  Mobile  Branch,  in  1839,  approve 
heartily  of  the  policy  of  the  New  Board  in  abandoning  the  advances  on  cot- 
ton, f  They  are  most  concerned  about  the  possibility  of  collecting  the  loans. 
"The  amount  of  bills  under  protest,  on  the  19th  November,  1838,  was 
$990,330.04.  On  the  i8th  November,  1839,  they  amounted  to  $3,345,374.88. 
We  know  not  whether  this  extraordinary  increase  has  been  produced  by  the 
necessities  of  the  times,  or  by  the  hope  of  extraordinary  indulgence  from  the 
Legislature.  So  many  individuals  have  a  deep  interest  in  preventing  the 
collection  of  this  debt,  that  the  utmost  caution,  virtue,  and  firmness  are 
now  required  in  the  selection  of  the  agents  to  whom  this  great  trust  shall  be 
committed — whether  they  be  the  ordinary  Board  of  Directors,  or  extraordinary 
commissioners  chosen  for  this  purpose." 

In  1839  an  attempt  was  made  to  prevent  the  United  States  Bank  of 
Pennsylvania  from  doing  business  in  Alabama.  This  raised  the  question  of 
the  right  of  a  corporation  chartered  in  one  State  to  do  business  in  another. 


*  55  Niles,  385. 


t  Sec  page  298. 


THE  BANKS  IN  THE  STATES;  1837  TO  1840. 


323 


en- 


That  right,  with  some  limitations  as  to  banks,  was  affirmed  in  United  States 
Bank  versus  Primrose  and  the  other  cases  decided  with  it.* 

Mississippi.— The  "Free  Trader"  said,  July,  1838:  "Against  the  banking 
institutions  of  Mississippi  we  find  the  voice  of  their  former  warmest  and 
most  devoted  friends  becoming  loud,  indignant,  and  denunciatory.  Every 
day  only  increases  public  imprecations  against  their  unscrupulous  swindling." 
"They  [the  banks  of  the  State]  must  raise  the  value  of  their  paper,  and  they 
must  do  it  soon.  There  is  no  time  to  be  lost."  "In  Lauderdale  County, 
on  the  night  preceding  the  time  for  the  opening  of  the  spring  term  of  the 
Circuit,  the  court-house  was  burned  down.  The  Judge,  unwilling  to  be 
thus  baffled,  determined  to  hold  the  court  in  some  other  building,  but  the 
Sheriff  resigned.  The  duties  then  devolved  on  the  Coroner,  but  he  too 
resigned;  and  the  Judge  was  actually  obliged  to  go  home  and  leave  the 
litigants  to  take  care  of  themselves,  "f 

The  Brandon  Bank  determined,  April  10,  1838,  to  redeem  its  circulation 
with  seventy-day  post-notes  payable  in  Philadelphia.^:  From  the  report  of 
the  Bank  Commissioners  in  1838,  we  get  the  following  exposition  of  the 
proceedings  and  status  of  the  Brandon  Bank.  In  the  statement  of  this 
bank  the  individual  deposits  appear  under  the  resources  to  the  amount  of 
over  $90,000.  The  reason  was  because  persons  who  delivered  cotton  to  the 
bank  would  not  give  notes  when  the  amount  received  was  less  than  the 
value  of  the  cotton.  The  amounts  thus  appeared  as  over-draf's.  "Their 
agencies  exercised  all  the  powers  of  a  bank  of  discount,  thus  giving  a  loco- 
motive character  or  the  principle  of  ubiquity  to  the  Brandon  Bank." 

The  bank  intervened  to  give  credit  to  planters  who  had  put  their  cotton 
in  its  hands  so  that  they  could  buy  provisions.  The  Commissioners  reckoned 
its  profits  for  the  year  at  fifty-one  per  cent,  of  its  capital.  If  it  is  allowed  to 
buy  its  own  depreciated  paper  they  will  be  much  greater.  "The  mode  by 
which  such  enormous  profits  are  realized  without  other  capital  is  very  simple. 
A  charter  is  first  obtained  from  the  Legislature.  A  small  portion  of  stock  is 
to  be  paid  in  before  the  bank  goes  into  operation.  A  few  honest  planters 
desirous  of  promoting  the  improvement  of  the  country,  which  the  bank 
promises,  take  stock  in  good  faith  and  pay  it  up  in  bona  fide  capital. 
Those,  however,  who  are  experienced  in  these  matters  pay  up  as  little  as 
possible,  but  as  the  latter  are  financiers  they  are  elected  to  manage  the  bank. 
They  soon  discount  paper  for  themselves  and  other  stockholders  of  financial 
abilities.  With  this  they  buy  more  property  to  secure  more  stock,  to  get 
more  discounts,  to  buy  more  property,  to  secure  more  stock,  etc.,  etc.,  and 
finally  they  are  able  to  write  up  a  very  respectable  capital  upon  which  they 
are  permitted  to  issue  double  the  amount.  *  *  *  So  long  as  a  few  men 
can  draw  a  profit  of  more  than  fifty  per  cent,  from  the  labor  of  the  country 
for  merely  writing  their  names  on  a  slip  of  paper,  promising  to  pay  their 
own  bank  any  given  amount,  it  is  natural  that  they  should  endeavor  to 


^1 


:li" 


■fti;'i 


I'^li 


,  \ 


*  I)  Peters,  519. 


t  3  Raguet'a  Register,  43.    July  1838. 


X  I  Ditto,  379- 


('  ) 


41 

^n 

11 

■M  • 

^■KEl 

'  !■■ 

.^.;iffl 

> 

mni' 

J^i 

i: 

.■i^e^il 

:  .   : 

:,»;'     " 


in,'    1 


'  1' 


l>     i 


324 


A  HISTORY  OF  BANKING. 


protract  their  harvest.  They  could  not  be  expixted  to  know  any  limits  but 
those  of  human  gullibility  and  endurance.  *  *  *  The  history  of  civil- 
ization affords  no  evidence  of  any  device  so  simple  and  so  efficient  in  reducing 
a  country  to  vassalage  as  these  principles  of  banking." 

"The  practice  pursued  by  the  banks  in  advancing  $60  a  bale  on  cotton 
or  $40  on  the  present  and  %20  on  the  coming  crop  is  the  principal  cause  of 
the  great  depreciation  of  our  bank  paper.  Every  dollar  beyond  the  real  price 
of  the  cotton  was  surplus  and  may  be  fairly  adopted  as  the  standard  to 
measure  the  loss  sustained  by  the  country  in  the  depreciation  of  the  circu- 
lating medium.  The  banks  made  their  discounts  and  the  speculators  who 
borrowed  from  them  were  enabled  to  change  their  creditors  and  protract  the 
payment  of  their  debts  by  the  operation;  but  as  soon  as  the  paper  passed 
into  the  hands  of  the  community  it  depreciated,  being  inconvertible;  the  $60 
would  not  pay  for  more  pork  or  other  necessary  articles  of  consumption  than 
the  real  value  of  the  cotton  would  have  purchased.  The  surplus  circulation, 
therefore,  was  a  total  loss  to  the  community.  *  *  *  No  State  in  the  Union 
was  more  deeply  injured  by  an  extended  currency  than  Mississippi."  The 
depreciation  doubles  the  cost  of  production  without  increasing  the  value  of 
the  cotton  which  must  be  exported.  The  ten  directors  of  the  bank  have 
borrowed  from  it  nearly  $600,000;  six  of  them  have  mutually  endorsed  for 
each  other,  so  that  the  total  liabilities  as  endorsers  are  over  $2,600,000. 

In  November,  a  convention  of  the  banks  of  Mississippi  was  held  to  agree 
upon  a  time  for  resumption;  but  they  adjourned  without  agreeing. 

The  Commissioners  to  sell  the  Union  Bank  bonds,  in  1838,  were  ordered 
in  their  commission  not  to  sell  them  for  less  than  par  in  current  money  of 
the  United  States.  A  select  committee  of  the  Legislature  which  reported  on 
them  in  1842  said  that  these  Commissioners  proposed  to  Biddle  to  make  the 
bonds  payable  in  London  at  four  shillings  and  sixpence,  although  they  also 
say  that  Biddle  made  this  an  indispensable  condition.  He  agreed  to  pay 
$^  millions,  lawful  money  of  the  United  States,  in  five  equal  installments  of 
$1  million  each;  the  first  four  payments  to  be  made  in  New  Orleans  and  the 
last  payment  in  Natchez,  in  July,  1839.  It  was  agreed  that  the  bonds  should 
bear  interest  from  their  date,  but  Biddle  was  not  to  pay  the  accrued  interest. 
His  contract  was  guaranteed  by  the  United  States  Bank,  whose  charter  did 
not  ,>ecify,  amongst  the  things  which  it  might  do,  the  purchase  of  State 
stocks.  The  Committee  of  1842  maintain  that /)rt/' means  face  and  accrued 
interest.  Biddle  actually  paid  $5  millions;  $1  million  in  specie;  $150,000  in 
notes  of  the  Merchants'  Bank  of  New  Orleans;  and  the  rest  in  exchange  on 
New  Orleans,  on  which  the  bank  realized  a  premium. 

In  his  message  at  the  opening  of  the  Legislature,  January,  1839,  Gover- 
nor McNutt  complained  of  the  behavior  of  the  Planters'  Bank  and  the  Union 
Bank,  which  had  refused  to  allow  themselves  to  be  examined  by  the  Bank 
Commissioners,  on  the  ground  that  the  latter  were  not  judicial  officers;  also 
because  the  Union  Bank  had  issued  depreciated  post-notes  whereby  the  bor- 
rowers had  been  forced  to  pay  at  the  rate  of  twenty-two  per  cent,  per  annum. 


THE  BANKS  IN  THE  STATES;  i8}j  TO  1840. 


^25 


In  view  of  the  complaints  that  were  made  that  the  Banit  of  the  United 
States  was  not  in  due  submission  to  the  federal  authorities,  it  is  interesting 
to  note  the  behavior  of  the  State  banks  to  the  State  authorities.  The  banks 
of  the  States,  in  which  the  State  owned  the  whole  or  a  large  part  of  the 
capital,  were  the  most  recalcitrant  and  defiant;  so  that  it  seemed  to  be  a 
rule  that  the  nearer  a  bank  was  to  the  State  authorities,  the  loss  the  State 
was  able  to  control  it.  The  Planters'  Bank  received  the  State  deposits  in  a 
better  currency  and  bought  Brandon  notes  with  which  it  paid  the  State 
creditors.*  The  banks  of  Mississippi  generally  responded  to  the  Bank 
Commissioners  in  impudent  terms.f 

The  following  is  from  the  report  of  the  Bank  Commissioners,  January, 
1839:  "This  company  [Bank  of  Vicksburg]  purchased  pork  in  Cincinnati  and 
Louisville  at  $13  to  $14  per  barrel,  and  sold  it  in  Vicksburg  at  $28  to  $32,  and 
in  New  Orleans  at  $27  per  barrel.  The  price  of  pork  was  raised  in  Cincin- 
nati and  Louisville,  in  less  than  two  weeks,  from  $13.30  to  $17  per  barrel. 
These  purchases  were  made  with  the  date  checks,  which  gave  the  company 
ample  time  to  realize  on  the  sale  of  the  produce,  and  meet  the  checks  with- 
out the  investment  of  a  single  dollar  of  actual  capital,  of  which  they  possess, 
bona  fide  but  $120;  the  $100,000  [shown  as  capital]  having  long  since  been 
returned  to  New  Orleans,  where  it  belonged." 

This  State  now  entered  on  the  same  course  which  we  have  noticed  in 
some  of  the  others.  It  began  to  use  up  so  much  assets  as  it  possessed  from 
its  earlier  operations.  By  a  law  of  February  15,  1839,  the  20,000  shares 
owned  by  the  State  in  the  Planters'  Bank  were  transferred  to  the  Mississippi 
Railroad  Company  as  subscription  for  its  stock.  The  Mississippi  Railroad 
Company  was  incorporated  to  build  certain  railroads.  It  built  about  twenty 
or  twenty-five  miles  and  then  failed.  The  net  returns  from  the  railroad 
were  $s,ooo  or  $6, 000.  J 

A  special  examiner  made  the  following  report  in  December.  1839: 
"Nothing  can  arrest  the  Agricultural  Bank  in  its  ruinous  course  but  the 
prompt  interference  of  legislative  power.  It  has  existed  in  continual  dis- 
regard of  the  law,  as  exemplified  in  its  traffic  in  cotton,  in  its  sale  of  post- 
notes,  and  in  paying  out  Brandon  Bank  paper  as  money  for  notes  discounted 
at  its  counter,  when  the  said  paper  was  at  thirty-five  per  cent,  discount. 
To  terminate  such  gigantic  frauds  on  the  public,  and  to  compel  the  bank  to 
do  equal  justice  to  its  debtors  and  creditors,  it  ought  to  be  wound  up  and 
its  charter  abolished." 

The  message  of  Governor  McNutt,  January,  1840,  was  chiefly  about  the 
Agricultural  Bank  and  the  Planters'  Bank.  After  showing  what  a  bloated 
and  rotten  concern  the  former  was,  he  said  that  both  were  indebted  to  the 
United  States  and  wei'e  under  bonds  to  pay  at  a  set  term.  The  Agricultural 
Bank  had  refused  to  answer  the  questions  put  by  the  special  agent  who  was 
appointed  to  investigate  it.     As  the  Governor  said,  the  bank  used  two  rules 


i 


■I  i )] 


w 


( 


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r  •  .'■ 

I' : ' 

KM 

¥ 

^^     I' 
M     I 


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if 


*  Treasury  Report,  April  9,  1840,  p.  591. 


+  Ibid,  605. 


t  Johnson's  Report  on  Assumption.  March  2,  1845. 


I  ■  1 


) 
I 


4 


}26 


A  HISTORY  OF  BANKING. 


m  •! 

Pin  1 1 
Mil' 


■v. 


:.      i 


at  its  convenience — what  the  charter  did  not  forbid  and  what  it  did  not 
impose  on  them.  The  United  States  District  Attorney  being  instructed  from 
Washington  to  examine  the  security  which  these  banks  offered,  was  appar- 
ently not  satisfied.  He  obtained  as  collateral  a  large  amount  of  their  bills 
receivable.  McNutt  was  afraid  that  he  would  put  the  bonds  in  suit  in  the 
federal  court,  and  thus  escape  responsibility  to  the  State  institutions.  He 
thought  that  the  remonstrance  of  a  sovereign  State  would  not  be  unheeded, 
and  he  proposed  to  the  Legislature  to  memorialize  the  federal  government 
to  remove  the  District  Attorney.  The  suits  were  postponed  by  the  inter- 
vention of  Senator  Walker. 

In  the  references  in  this  message  of  the  Governor  to  the  Union  Bank  there 
is  as  yet  no  repudiation.  The  same  may  be  said  of  the  report  of  a  legislative 
committee  at  this  session,  although  complaint  was  made  of  the  terms  on 
which  the  bonds  had  been  negotiated.  The  committee  stated  that  the  losses 
of  the  Union  Bank  would  be  immense,  and  it  was  already  evident  that  the 
State  would  have  to  pay  the  principal  and  interest  of  the  bonds.  Their 
argument  is  all  directed  to  the  point  that  the  rest  of  the  bonds  should  be 
withheld  from  the  bank.  They  attributed  the  bad  management  of  the  Union 
Bank  to  the  eagerness  to  provide  "relief."  "When  a  community,  by  spec- 
ulation, over-trading,  and  inflated  prices,  has  become  deeply  involved,  greatly 
increased  banking  facilities  only  increase  the  violence  and  malignity  of  the 
disease." 

Louisiana. — A  committee  of  the  Legislature  made  a  report,  March  14, 
1838,  from  which  it  appears  that  twelve  directors  of  the  Gas  Light  Bank 
owed  to  it,  December  2?,  1837,  $1.4  millions,  as  drawers,  and  nearly 
$400,000  as  endorsers.  Hermann,  Briggs  &  Co.  stand  first  on  the  list, 
debtors  for  a  half  million.  The  committee  find  that  a  large  part  of  this 
indebtedness  was  for  "kites  or  race-horses,"  and  that  exchange  operations 
to  a  large  amount  had  been  agreed  to  by  the  president,  in  which  he  was 
himself  interested,  when  no  one  but  the  cashier  and  himself  were  present. 
The  bank  owed  the  Bank  of  the  United  States  $2  millions,  payable  in  one 
and  two  years.* 

A  statement  of  the  condition  of  the  sixteen  banks  of  Louisiana,  December 
23,  1837,  showed  that  they  held  undivided  profits,  $6.2  millions;  protested 
paper  on  hand,  $2.8  millions;  besides  $1  million  held  for  account  of  the  Bank 
of  the  United  States.  The  total  capital  was  $30.9  millions;  the  deposits,  $7,4 
millions;  the  circulation,  $7.5  millions;  the  specie,  $2.7  millions.f 

The  banks  of  Louisiana  resumed  about  January  i,  1839.  A  healing  act  for 
the  suspension  was  passed  March  14th.  This  was  not  to  be  construed  as 
authorizing  any  future  suspension;  weekly  balances  were  to  be  paid  between 
the  banks. 

Tennessee. — The  Southwestern  Railroad  Bank  was  chartered  by  Ten- 
nessee December  5,  1837.     The  fourth  Bank  of  the  State  of  Tennessee  was 


m  ( . 


*  I  Raguet's  Register,  3)2. 


t  I  Raguet's  Register,  270. 


:ir. 


am 


THE  BANKS  IN  THE  STATES;  1837  TO  1840. 


3^1 


chartered  January  19,  1838;  capital  $=;  millions;  all  the  school  fund,  the  fed- 
eral surplus  revenue,  and  all  the  credits  of  the  State  were  to  be  put  into  its  capi- 
tal, and  the  remainder  was  to  be  raised  by  bonds  on  the  faith  of  the  State. 
That  part  of  the  federal  surplus  which  had  been  deposited  in  the  three  exist- 
ing banks  was  to  be  paid  over  within  two  years  to  this  bank.  Six  percent, 
thirty-year  bonds  were  to  be  issued  to  the  president  of  the  bank;  the  bank 
was  also  to  negotiate  bonds  issued  for  internal  improvement  companies. 
The  Governor,  with  the  confirmation  of  the  Legislature,  was  to  appoint 
twelve  directors;  term  of  the  charter,  1868;  dividends  to  go  to  schools; 
lowest  note  $5;  after  January  i,  1841,  $10;  notes  receivable  by  the  State; 
the  head  and  three  branches  to  be  in  Middle  Tennessee,  two  branches  in 
the  west  and  two  in  the  east;  the  bank  to  pay  interest  out  of  the  State  divi- 
dends on  the  State  bonds  issued  to  internal  improvement  companies,  which 
are  also  provided  for  in  this  act.  It  is  enacted  in  general  that  the  State 
shall  take  half  the  stock  in  any  such  companies  which  have  been  or  may  be 
incorporated.  The  president  of  the  bank,  in  his  report  of  1839,  said  that 
there  appeared  to  have  been  two  motives  for  the  establishment  of  the  bank; 
one,  to  give  relief,  which  required  that  its  issues  should  be  proportionately 
distributed  over  the  State;  the  other,  to  provide  a  sound  currency,  assist 
commerce,  education,  and  public  works,  by  making  large  dividends. 
These  purposes  were  somewhat  antagonistic.  The  branches  had  been  estab- 
lished with  a  view  to  the  former  purpose.  Another  president,  in  184s,  said 
that  its  profits  had  been  sacrificed  by  the  locations  selected  for  its  branches. 

This  bank  apparently  began  under  suspension  June  27,  1838,  for  it  was 
announced  that  its  post-notes  would  be  redeemed  in  specie  as  soon  as  other 
banks  in  the  State  should  commence  specie  payments.  On  the  5th  of 
December  specie  at  Nashville  was  at  twelve  and  thirteen  premium.* 

Its  issues  were  pleaded  against  as  bills  of  credit,  but  were  held  to  be 
covered  by  Briscoe's  case.f 

Ohio. — At  the  session  of  1835-6,  the  United  States  Bank  of  Pennsylvania 
was  forbidden  to  have  any  bank  or  banker  as  its  agent  in  Ohio;  the  penalty 
on  a  bank  which  should  act  for  it,  $10,000,  on  a  banker$i,ooo.  It  was  made 
unlawful  to  circulate  its  notes;  penalty  $1,000,  and  any  officer  employed  by 
the  Bank  was  made  subject  to  a  penalty  of  $soo.  Action  might  be  prosecuted 
by  any  citizen.  This  law  was  repealed  January  26,  1838,  but  another  law  was 
passed  February  9.  1839,  making  it  unlawful  for  any  bank  or  agent  to  act 
for  that  Bank  or  for  any  other  bank,  incorporated  by  any  other  State  or  by 
the  United  States.  No  foreign  bank  might  establish  an  agency  without  the 
consent  of  the  Legislature,  and  it  was  made  unlawful  to  act  as  the  agent  to 
put  the  notes  of  such  bank  in  circulation. 

No  State  ever  seemed  to  struggle  so  hard  against  unauthorized  notes  as 
Ohio.  All  unincorporated  companies  were  forbidden,  February  16,  1838,  to 
issue  notes  without  authorization.     Any  incorporated  company  which  issued 


*  I   Raguet's  Register,  112. 


t  Craighead  versus  the  Banlt  of  Tenn.     i  Meigs,  199. 


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A  HISTORY  OF  BANKING. 


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tj:; 


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notes,  not  being  authorized  so  to  do,  was  to  lose  its  charter.  No  individual, 
town,  or  city  might  issue  notes;  penalty,  %^o  for  each  offense.  March  13th, 
the  prohibition  of  small  notes  was  repealed.  Banks  which  would  redeem 
them  in  specie  might  issue  down  to$i.  The  banks  were  required  to  resume 
by  July  4,  1838,  provided  that  the  banks  of  New  York,  Philadelphia,  and 
Baltimore  should  do  so  by  that  time;  otherwise  their  notes  would  not  be 
received  by  the  State. 

A  convention  of  banks  of  the  State  was  held  April  30,  1838,  for  the 
purpose  ofequalizing  the  currency  of  the  State  by  a  system  of  mutual  credits.* 

All  notes  less  than  $3  were  forbidden,  February  9,  1839,  after  the  following 
July  4th;  also  all  under  $5  after  October  ist;  the  penalty  for  issuing  or 
passing  was  $50  for  each  note,  or  an  injunction  might  be  obtained  against 
the  corporation.  February  25,  1839,  an  attempt  was  made  to  establish  a 
general  law  for  the  regulation  of  banks.  Commissioners  were  appointed  to 
visit.  No  bank  was  to  owe,  exclusive  of  its  deposits,  more  than  one  and 
a-half  times  its  paid-up  capital,  and  shares  paid  for  by  stock  notes  were  not 
to  be  considered  paid-up.  The  circulation  was  never  to  exceed  three  times 
the  specie;  banks  never  to  buy  their  own  notes  at  a  discount;  twelve  per 
cent,  penalty  for  non-redemption;  fine  of  $5  to  $50  for  refusal  to  endorse  on 
a  note  the  refusal  to  redeem  it;  the  Commissioners  to  obtain  a  mandamus  to 
the  sheriff  to  close  any  bank  which  should  not  redeem  for  thirty  days,  and 
the  Court  to  name  three  receivers  to  wind  it  up,  the  charter  being  annulled. 

March  i8th,  another  attempt  was  made  to  define  more  strictly  unauthor- 
ized notes,  so  as  to  include  all  paper,  no  matter  what  its  form,  if  it  was 
intended  to  circulate  as  money. 

The  Auditor  reported,  Decern t)er  3,  1839,  that  the  Washington  Social 
Library  Company  had  commenced  banking,  declared  a  dividend,  and  asked 
the  Auditor  to  draw  for  the  State  tax  on  it.  The  Granville  Alexandrian 
Society  had  also  taken  the  same  step,  the  purpose  being  to  win  a  recognition 
of  their  banking  right.  He  had  refused  to  draw  for  the  tax  and  a  quo  war- 
ranto had  been  issued  by  the  Supreme  Court, 

Gouge  has  the  following  story  of  an  institution  of  this  character.  Some 
thirty  years  earlier  a  charter  had  been  granted  to  a  library  company  in  New- 
town, Hamilton  County,  Ohio,  which  company,  after  being  in  operation 
about  ten  years,  sold  its  books  by  public  auction  and  dissolved  itself  to  all 
intents  and  purposes.  In  1840,  the  shares  were  bought  up  by  some  eastern 
men  on  a  pretext  of  establishing  a  manual  labor  school,  but  they  began  im- 
mediately to  issue  paper  money.  They  have  nothing  with  which  to  redeem 
these  issues,  "except  the  library,  consisting  of  Harper's  family  library,  some 
old  newspapers,  and  some  rusty  novels  and  tracts.  The  chief  book  in  the 
collection  is  a  copy  of  'Oliver  Twist'  with  engravings.  It's  called  the  Bank 
of  Hamilton  County."t 

le  Bank  Commissioners,  January,   1840,  showed  that  half 


jport 


•  I  Raguet's  Register,  )79. 


t  Journal  of  Banking,  91.     (\S^i.) 


waesamttm 


^ 


THE  BANKS  OF  THE  STATES;  i8jy  TO  184Q. 


}2q 


the  banking  capital  of  tiie  State  was  owned  by  non-residents;  one-third  of 
ail  the  loans  were  to  bank  officers  and  directors  as  borrowers  or  endorsers. 
"The  banks  distrusted  one  another  and  the  public  distrusted  them."  They 
had  been  warring  on  each  other.  Nine  institutions  are  mentioned  which 
have  "illegal  circulation; "  one  is  the  Orphans'  Institute.  There  are  also  a 
great  many  forged  notes  afloat  and  notes  of  Michigan  banks  payable  in 
Illinois. 

March  2},  1840,  small  notes  were  once  more  forbidden.  Also  it  was 
forbidden  to  pass  them  except  to  redeem  those  now  out;  also  it  was 
forbidden  to  issue  notes  payable  at  a  future  day  or  elsewhere  than  at  the 
place  of  issue.  All  notes  were  held  payable  on  demand  in  specie  at  the 
place  of  issue.  No  broker  might  pay  out  illegal  notes;  no  notes  under  $=5  to 
pass  if  not  issued  by  the  banks  of  Ohio;  no  State  officer  was  to  receive  or 
pay  out  notes  under  $5.  The  Bank  Commissioners  in  their  next  report  said 
that  this  law  had  greatly  diminished  the  circulation  of  unauthorized  notes. 

Michigan.-- Tbf  Fanr.eis  and  Mechanics'  Bank  was  incorporated  by  the 
Territorial  authority  in  1829.  A  safety  fund  system  was  created,  March  28, 
1836. 

A  general  banking  law  was  passed  March  15,  1837.  Twelve  freeholders 
of  a  county  might  form  an  association  under  certain  conditions.  The 
minimum  capital  was  $50,000,  of  which  $15,000  must  be  paid  in  before 
commencing.  The  allowed  issue  was  $37,300.  This  law  stimulated  the 
formation  of  banking  companies.  In  1838,  there  were  forty  or  fifty  of  them, 
for  it  appears  that  the  number  was  not  really  known.  It  was  a  caricature  of 
the  New  York  system,  and  produced  a  swarm  of  small,  swindling  con- 
cerns. After  the  suspension,  in  1837,  the  Legislature  sanctioned  the  ac- 
tion of  the  banks  in  suspending,  for  one  year,  and  a  redemption  law  was 
passed  for  land  sold  on  purchase-money  mortgages,  allowing  the  equity 
owner  one  year  to  redeem,  with  ten  per  cent,  interest.  The  name  "wild- 
cat" banks  is  said  to  have  originated  in  Michigan.  Bank  Commissioners 
were  appointed,  who  made  their  first  report  April  6,  1838.  In  it  we  find 
the  following:  "On  examination  of  the  books  of  the  Jackson  County  Bank, 
the  following  circumstances  were  exhibited:  the  names  of  all  persons  and 
corporations  with  whom  accounts  had  been  opened  were  written  in  pencil; 
the  entries  in  ink.  In  a  few  minutes,  therefore,  the  whole  face  of  the  business 
transactions  of  the  bank  could  have  at  anytime  been  entirely  changed." 
"  The  Commissioners  proceeded  to  an  examination  of  the  specie  of  the 
[Jackson  County]  bank.  Gold  coin  was  exhibited  loose  in  a  drawer,  which, 
being  counted,  amounted  to  the  sum  of  $1,037.78;  about  $iso  in  loose 
silver  was  also  counted.  Beneath  the  counter  of  the  bank,  nine  boxes  were 
pointed  out  by  the  teller  as  containing  $1,000  each.  The  teller  selected  one 
of  these  boxes  and  opened  it;  this  was  examined,  and  appeared  to  he  a  full 
box  of  American  half  dollars.  One  of  the  Commissioners  then  selected  a 
box,  which  he  opened,  and  found  the  same  to  contain  a  superficies  only  of 
silver,  while  the  remaining  portion  consisted  of  lead  and  ten-penny  nails. 


A!H 


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A  HISTORY  OF  BANKING. 


The  Commissioner  then  proceeded  to  open  the  remaining  seven  boxes;  they 
presented  the  same  contents  precisely,  with  a  single  exception,  in  which 
the  substratum  was  window-glass  broken  into  small  pieces."  "  On  refer- 
ence to  the  statement  of  the  bank  [of  Jackson  County],  dated  February  iq, 
i8j8,  the  third  day  previous  to  this  examination  it  will  appear  that  on  that 
day  the  bank  claimed,  under  the  signatures  of  three  of  its  directors,  to  be 
possessed  of  the  sum  of  $20,000  in  specie,  independent  of  the  certificate  of 
deposit  for  $10,000." 

All  the  penalties  of  suspension  were  suspended,  June  23,  1837,  until  May 
16,  1838.  The  banks  which  availed  themselves  of  this  indulgence  must 
come  under  the  safety  fund  obligation,  and  submit  to  the  visitation  of  the 
Bank  Commissioner.  December  30th,  the  number  of  Commissioners  was 
increased  to  three,  and  they  were  to  visit  each  bank  at  least  once  in  three 
months. 

Michigan  money  was  reported  in  June,  1858,  to  consist  of  three  kinds, 
red  dog,  wild  cat,  and  catamount.  "Of  the  best  quality  it  is  said  that  it 
takes  five  pecks  to  make  a  bushel."* 

The  Bank  of  the  State  of  Michigan  was  chartered  April  2,  1839.  It  was 
imitated  almost  exactly  from  the  Bank  of  the  State  of  Indiana.f  The  differ- 
ence in  the  history  of  the  two  shows  how  little  the  "plan"  of  a  bank  has  to 
do  with  its  success.  December  30th  following,  the  Bank  Commissioners 
reported  that  this  bank  was  under  injunction  and  had  been  ordered  to  wind 
up.     At  that  time  all  the  banks  in  the  State  were  broken. 

Indiana. — The  Bank  of  the  State  of  Indiana  suspended  with  the  others  in 
1837.  The  Legislature  at  its  next  session  declared  by  resolution  that  the 
suspension  was  "justifiable  and  necessary  under  the  then  existing  circum- 
stances, and  that  the  approval  thereof  by  the  directors  of  the  State  Bank  was 
properly  given."  It  was  declared  to  be  the  duty  of  the  bank  to  resume 
within  thirty  days  after  the  resumption  of  the  banks  on  the  Atlantic  coast, 
and  with  those  of  Ohio  and  Kentucky.  The  bank  loaned  to  the  State 
$286,751,  the  amount  of  the  fourth  installment  of  the  federal  surplus  revenue. 
The  State  was  then  deep  in  expenditures  for  public  works,  which  were  all 
managed  outside  of  the  State  treasury.  The  State  Treasurer  was  alarmed 
at  the  growth  of  the  debt;  nevertheless,  by  an  act  of  February  12,  1839,  it 
was  voted  to  contract  a  loan  of  $1.5  millions  in  that  year,  and  $700,000  in 
each  of  the  five  following  years,  to  increase  the  capital  of  the  State  Bank. 
This  act  only  shows  the  mania  of  the  moment.  The  State  credit  did  not 
avail  to  contract  the  loan. 

Inasmuch  as  this  Bank  of  the  State  of  Indiana  is  the  only  one  of  the  great 
banks  of  the  States  which  was  successful,  it  is  interesting  to  note  any  indi- 
cations of  the  reason  of  its  success.  We  note  immediately  that  the  Central 
Board  exerted  genuine  and  stringent  discipline,  and  that  their  interests  and 
feelings  were  not  engaged  in  the  banking  business,  because  they  had  no 


*  54  Niles,  224. 


t  See  page  255. 


THE  BANKS  OF  THE  STATES;  18^7  TO  1840. 


3)^ 


bank  to  manage.  In  1810,  they  issued  peremptory  orders  to  one  of  the 
branches  to  pay  a  sum  due  to  the  Treasury  of  the  United  States,  and  pro- 
vided for  the  payment  by  the  other  branches,  if  the  one  in  question  should 
fail.  They  approved  and  allowed  the  dividend  of  each  branch ;  inspected 
the  branches  and  ordered  their  policy;  gave  or  refused  permission  to  take 
government  deposits.  They  watched  the  tendency  to  accommodation 
paper  and  laid  down  banking  rules. 

The  Bank  of  the  State  suspended  a  second  time  in  the  fall  of  1839,  with 
the  exception  of  three  of  the  branches.  Its  report  for  November,  1840, 
showed  profits  for  the  year  of  ten  and  a-half  per  cent.  The  president  said : 
"There  have  been  almost  no  difficulties  in  managing  ihe  bank,  which  have 
not  arisen  mainly  from  the  purchase  of  stock  by  persons  with  the  expecta- 
tion of  borrowing  money  on  more  favorable  terms  than  could  be  allowed  to 
others." 

Illinois. — As  soon  as  the  general  bank  suspension  occurred,  an  extra 
session  of  the  Legislature  was  called,  at  which  all  the  acts  against  bank  suspen- 
sion were  suspended  until  the  end  of  the  next  session,  but  the  banks  were 
not  to  pay  dividends  nor  sell  specie  nor  increase  the  circulation  beyond  the 
paid-up  capital;  were  to  give  monthly  statements  to  the  Governor,  and  to 
allow  renewals  to  their  debtors,  ten  per  cent,  being  paid  at  each  renewal. 

Residents  of  Illinois,  in  June,  1898,  owned  $60,000  of  the  stock  of  the 
Bank  of  the  State.  The  liabilities  of  these  stockholders  to  it  were  about 
$900,000.* 

The  Bank  of  the  State,  having  suspended  again  in  1839,  was  revived  by 
an  act  of  January  31,  1840,  and  the  forfeiture  of  its  charter  was  set  aside, 
provided  it  would  agree  to  the  stipulations  in  the  act  of  the  extra 
session  of  1837,  authorizing  suspension. 

Arkansas. — The  Governor,  in  1846,  said:  "The  financial  history  of  the 
State  exhibits  a  series  of  blunders."  A  tax  of  one-fourth  of  one  per  cent, 
was  levied  by  the  first  Legislature,  1836.  It  promised  to  produce  more  rev- 
enue than  was  wanted  and  the  Governor  hastened  to  call  an  extra  session 
at  which  the  levy  was  reduced  to  one-eighth,  which  did  not,  for  ten  years, 
give  a  revenue  of  $30,000.  There  was  an  annual  deficit  which  was  met  by 
eating  up  the  deposit  of  the  federal  surplus  revenue.  At  that  same  called- 
session  banks  were  planned  to  support  the  State  and  do  away  with  taxa- 
tion. The  consumption  of  the  federal  surplus  was  a  consumption  of  a  part 
of  the  capital  of  the  Bank  of  the  State.  The  Governor  also  complained  of 
the  great  amount  of  auditor's  warrants  which  had  been  issued  during  the 
first  ten  years  of  the  State's  existence  and  which  were  at  about  fifty  cents  on 
the  dollar. 

The  Constitution  of  1836  provided  that  the  Legislature  might  incorporate 
one  Bank  of  the  State,  "which  shall  become  the  repository  of  the  funds 
belonging  to,  or  under  the  control  of  the  State,  and  shall  be  required  to  loan 


!      '•  'i 


♦  Committee  on  Banks,  January,  1S45. 


^33 


A  HISTORY  OF  BANKING. 


t'-; 


!  r' 


l*M 


:! 


them  out  throughout  the  State,  and  in  each  county,  in  proportion  to  repre- 
sentation. And  they  shall  further  have  power  to  incorporate  one  other 
banking  institution,  calculated  to  aid  and  promote  the  great  agricultural 
interests  of  the  country,  and  the  faith  and  credit  of  the  State  may  be 
pledged  to  raise  the  funds  necessary  to  carry  into  operation  the  two  banks 
herein  specified:  Provided,  Snch  security  can  be  given  by  the  individual 
stockholders  as  will  guarantee  the  State  against  loss  or  injury." 

From  this  provision  of  the  Constitution  it  is  evident  that  the  scheme  of 
the  banks  was  already  in  mind. 

The  report  of  the  Committee  of  the  Legislature,  in  1836,  on  the  propo- 
sition for  the  two  banks,  pointed  to  the  example  of  the  great  Banks  of  the 
State  in  South  Carolina,  Georgia  and  Alabama;  and  spoke  in  general  terms 
of  the  advantages  of  banking,  with  an  issue  of  three  for  one  on  the  capital. 
They  said  that  the  Bank  of  the  State  would  gain  not  less  than  $so,ooo  per 
annum.  Before  it  adjourned,  the  Legislature  made  plans  to  put  the  State  in 
debt  $3,040,000.  Its  population  was  about  90,000.  It  is  one  of  the  most 
astonishing  facts  in  this  marvelous  period  that  communities  like  Arkansas, 
Illinois,  Indiana,  and  Florida  should  have  found  anybody  to  lend  to  them, 
even  if  they  were  foolish  enough  to  borrow.  The  best  defense  of  them- 
selves which  they  could  make  to  their  creditors  afterwards  was:  We  have 
all  been  crazy  together. 

The  Real  Estate  B:mk  of  Arkansas  was  incorporated  October  26,  1836. 
It  was  on  the  model  of  the  Union  Bank  of  Louisiana,  but  its  history  was 
longer,  fuller,  and  is  better  kn-  wn  to  us  than  that  of  any  other  bank  on 
that  model.  The  capital  was  to  consist  of  $2  millions,  borrowed  abroad  by 
means  of  bonds  of  the  State,  and  the  stockholders  were  to  subscribe  $2.5 
millions  in  mortgages,  to  be  transferred  to  the  State  as  its  security.  It  was 
to  begin  with  three  branches,  each  to  be  independent.  Each  branch  was  to 
elect  two  of  its  directors,  who,  with  the  president  of  the  branch  and  three 
members  of  the  parent  board,  were  to  constitute  the  Central  Board.  They 
were  to  elect  the  president,  hold  all  papers  and  records,  receive  the  State 
bonds  and  negotiate  them  at  not  less  than  par,  in  current  money;  the  bank 
to  pay  the  principal  and  interest  of  them.  Each  stockholder  was  entitled  to 
a  credit  equal  to  one-half  his  shares.  All  dues  to  the  bank  were  to  be 
arranged  so  as  to  run  out  twenty-two  years  from  the  date  of  the  charter; 
non-stockholders  might  renew  notes  with  mortgage,  annu;illy,  for  ten 
years;  the  incorporation  was  for  twenty-five  years,  the  last  three  years 
being  allowed  for  liquidation.  The  bank  was  a  preferred  creditor,  so  that 
its  mortgages  are  called  privileged  mortgages.  AH  profits  were  to  remain 
in  the  bank  and  accumulate  until  the  State  bonds  were  paid.  Only  at  the 
end  of  twenty-two  years  could  the  surplus  assets  be  divided  amongst  the 
stockholders.     Borrowers  paid  to  the  bank  eight  per  cent. 

The  fact  that  it  was  the  State  which  organized  this  institution,  and  that 
it  was  called  a  bank,  blinded  the  minds  of  its  originators  to  the  fact  that  it 
was  a  gigantic  financial  experiment,  containing  an  enormous  risk.     When 


THE  BANKS  OF  THE  STATES;  1837  TO  1840. 


jn 


it  failed,  the  mortgages  for  the  stock  and  the  mortgages  for  the  loans,  with 
the  guarantee  of  the  State  to  the  bondholders,  and  of  the  stockholders  to  the 
State,  were  found  to  make  an  inextricable  snarl.  A  Governor,  in  18S4, 
said:  "It  was  never  intended  that  the  people  should  be  taxed  to  pay  the 
bonds  or  the  interest  on  them."  This  was  naively  true,  but  it  implied  that 
the  loss,  if  the  scheme  did  not  succeed,  was  to  be  thrown  on  the  purchasers 
of  the  State  bonds.  Fifteen  hundred  and  thirty  bonds  were  actually  issued 
for  the  bank  and  five  hundred  more,  a  little  later,  for  another  branch.  The 
latter  issue  was  hypothecated  with  the  North  American  Trust  and  Ranking 
Company  of  New  York  for  a  loan,  on  which  the  actual  amount  received  was 
$121,336.  That  bank  failed  and  the  collateral  was  sold,  passing  into  the 
hands  of  Holford  of  London. 

The  number  of  acres  mortgaged  to  the  bank  was  187,810,  appraised  at 
$3,380,772.  Ten  years  later  they  were  said  to  be  worth  about  $2  millions. 
There  were  two  hundred  and  eighty  stockholders. 

The  Bank  of  the  State  of  Arkansas  was  incorporated  November  2,  1836; 
$1  million  capital,  to  be  raised  by  State  loan;  president  and  twelve  directors 
to  be  elected  by  joint  ballot  of  the  Legislature;  also  a  president  and  nine 
directors  for  each  branch;  lowest  note,  $s;  never  to  issue  more  than  three 
times  the  capital;  to  begin  when  $so,ooo  in  coin  paid  in,  and  to  establish  a 
new  branch  for  every  $so,ooo  paid  in;  each  branch  to  be  independent  in  its 
business;  the  funds  and  revenues  of  the  State  to  constitute  the  capital;  trust 
funds  might  be  placed  in  it  for  not  less  than  a  year  and  get  the  same  dividend 
"as  other  stock  belonging  to  said  institution."  Not  more  than  half,  nor  less 
than  a  quarter,  of  the  means  were  to  be  used  in  the  counties,  in  proportion 
to  "representation,"  in  loans  on  real  estate  for  five  years.  The  number  of 
bonds  actually  sold  for  this  bank  was  i,  169. 

The  federal  surplus  revenue,  which  had  been  intended  for  the  Bank  of 
the  State  of  Arkansas,  was  paid  in  drafts  on  the  Agricultural  Bank  and  the 
Planters'  Bank  of  Mississippi.  After  great  difficulty,  instead  of  %}S2,}}}, 
which  was  the  State's  quota,  the  bank  obtained  only  $286,757.  The  former 
amount  was  due  to  the  United  States  in  specie,  but  out  of  the  amount  which 
Arkansas  obtained,  only  $91,167  was  specie.  The  rest  was  in  the  notes  of 
suspenrlrrl  b.itik.s  ill  Ohio  Kentucky,  Louisiana,  and  Mississippi.  The  bank 
p'l  thesv  tes  afloat  in  Arkansas,  and  issued  post-notes  of  its  own.  Of 
■i-  mand  notes  it  issued  only  $8,310. 

January  i"  1838,  the  directors  of  the  Fayetteville  branch  resolved  that  as 
they  receivi  no  compensation,  the  bank  should  lend  them,  on  their  notes 
at  twelve  months,  $10,000  each,  being  the  limit  set  in  the  charter.  They 
V  re  also  to  be  allowed  to  renew  their  notes  until  all  the  debts  should  be 
called  in.  This  branch  was  operating  on  a  bare  capital  of  $110,000,  and 
these  directors  took  $90,  >  out  of  it.  January  i,  1839,  the  bank  was  very 
strong  and  began  to  pay  specie  on  its  notes  and  post-notes;  but  each  branch 
paid  out  the  notes  of  others,  keeping  the  circulation  far  away  from  the  point 
of  redemption.     The  Fayetteville  branch  suspended  again  October  31st. 


I 


334 


A  HISTOR  Y  OF  BANKING. 


tki 


B:  if 


'HA 


The  issues  of  this  banit  were  assailed  as  bills  of  credit,  but  the  State 
Supreme  Court  held*  that,  under  Briscoe's  case,  "by  which  in  this  case  this 
Court  is  bound,  whatever  may  be  its  opinion  to  the  contrary,  the  notes 
issued  by  the  Bank  of  the  State  of  Arkansas  are  not  bills  of  credit  within  the 
meaning  of  the  federal  Constitution,  and  that  the  act  incorporating  the  bank 
is  constitutional."  Referring  to  the  cases  of  Craig  and  Briscoe,  the  Judge 
said:  "Like  Justice  Story,  we  believe  that  the  two  cases  stand  on  precisely 
the  same  ground  and  turn  expressly  on  the  same  principle." 

The  two  banks  suspended  in  the  fail  of  1839.  This  was  done  not  from 
necessity  but  from  policy.  The  immediate  means  of  the  Bank  of  the  State 
were  $469,949  and  its  immediate  liabilities  not  over  $400,000.  It  suspended 
in  order  to  expand  and  inflate.  In  fact  the  banks  lent  out  to  the  clique  in 
control  all  the  specie  and  real  funds  which  they  ever  obtained,  once  for  all, 
and  then  stopped.     The  bank  at  Little  Rock  resumed  for  a  while  October  », 

1840,  to  the  great  displeasure  of  the  other  branches.  It  had  nearly  twice  ivi 
much  specie  as  notes  out.  At  the  following  session  a  legislative  Committee 
was  appointed  to  investigate  the  banks.  Resolutions  were  adopted 
expressing  dissatisfaction  with  the  Real  Estate  Bank  for  suspending,  and  tie 
report  of  the  president  was  declared  to  be  "not  the  most  intelligible  and 
satisfactory.  '  The  report  showed  that  the  commissioners  to  sell  the  bonds 
for  the  bank  sold  $500,000  to  the  Secretary  of  the  Treasury  for  the  Smith- 
sonian bequest,  w^hich  had  been  imported  into  this  country  in  specie 
They  paid  $5,000  to  a  broker  in  Washington  for  negotiating  the  sale,  and 
charged  the  same  sum  for  themselves.  They  converted  the  money  into 
southwestern  paper,  and  pocketed  the  difference;.  They  charged  $28, 994 
for  their  expenses  and  services,  and  for  conside^-ations  not  stated  loaned 
$8,500  to  certain  individuals  in  New  York.f 

More  information  was  demanded  in  regard  to  specie,  debts  due  to  the 
bank,  the  amount  of  mortgage  security  to  save  the  State  from  loss,  etc. 
The  Real  Estate  Bank  paid  the  interest  on  the  bonds  issued  for  it  until  July, 

1841,  except  on  the  Holford  bonds,  <ind  on  the  cash  received  for  a  part  of 
the  same  issue.  December  1 5,  1842,  the  State  appointed  an  agent  to  instruct 
and  help  the  attorney  of  the  Bank  of  the  State  in  a  suit  aginst  the  North 
American  Trust  Company  and  its  guarantors. 


*  4  Pike, 44.    (1841.) 


1 64  Niles,  5. 


IlL*BJU»««»tMMES=**»^ 


ptniuuuuinnniuumniuuuuinniuuuinjuuimuuumnnAnnnnnnnnnnmuuuuuuu^ 


p|TiT|l|T|l|l|T|Y|l 


nnjuuuuuuuuuuumniuuuuuuuuuuuuuuuymnnnnn/uuuuuuiB 


IJ3  -I 


CHAPTER  XIV.— Continued. 


§  5. — 1840  and  1841.  The  Third  Failure  and  Final  Bankruptcy  of  the 
United  States  Bank.  The  Bank  Failures  of  1841.  The  Extra  Session 
of  Congress  of  1841.  The  Last  Attempts  to  Charter  a  National 
Bank,     The  Pennsylvania  Relief  System. 

The  amount  of  circulation  of  the  safety  fund  banks  of  New  York,  Janu- 
ary I,  1839,  was  $19.3  millions.  During  the  year  1839,  the  withdrawal  of 
safety  fund  notes  exceeded  $7  millions,  while  the  issue  of  new  notes  was 
about  $6  millions,  so  that  there  was  a  net  diminution  in  that  year  of  $1.7 
millions  The  Comptroller  said:  There  is  a  reasonable  and  necessary  depre- 
ciation of  bank  note  currency  as  it  is  carried  away  from  the  place  of  issue 
equal  to  the  expense  of  transporting  gold  and  silver  to  the  same  point. 
"Any  further  depreciation  is  unjust  to  the  community  which  has  to  sustain 
it."  He  proposed  that  the  banks  under  the  gener.»l  banking  law  should 
appoint  agents  to  meet  weekly  to  assort,  count,  and  arrange  in  separate 
packages  all  the  notes  received  at  the  agency,  and  adjust  the  balances 
between  the  different  banks,  with  an  allowance  of  time  according  to  the 
distance,  for  the  payment  of  the  debtor  balances.  He  was  of  the  opinion 
that  the  safety  fund  banks  and  the  general  banking  associations  acted 
antagonistically  to  one  another,  and  must  do  so  unless  some  means  of  uni- 
form redemption  of  their  issues  could  be  devised.* 

April  25,  1840,  the  Legislature,  in  pursuance  of  these  suggestions  passed 
an  act  providing  that  every  bank,  banking  association,  and  individual 
banker,  except  those  in  New  York,  Albany  and  Brooklyn,  should  appoint 
an  agent  in  New  York  City  to  redeem  their  notes  at  not  more  than  one-half 
of  one  per  cent,  discount.  If  the  agent  of  any  bank  should  fail  to  redeem 
its  notes,  that  bank  should  pay  interest  on  the  same  at  the  rate  of  twenty 
per  cent,  per  annum,  and  if  the  redemption  was  delayed  over  twenty  days, 
the  bank  should  be  liable  to  be  proceeded  against  by  the  Bank  Commis- 

•  Comptroller's  Report,  1840. 


:4 


t ' 


m 


1:   f  I 


if 


\  «i 


336 


/I  HISTORY  OF  BANKING. 


sioners.  No  bank  was  to  receive  circulating  notes  after  that  time  until  after 
it  had  appointed  a  redemption  agent.  In  May,  1840,  the  act  was  amended 
so  that  any  person  or  association  who  should  put  in  circulation  any  note  not 
payable  on  demand,  that  is  any  post-note,  should  be  punished  by  fine  and 
imprisonment,  as  for  a  misdemeanor.  The  section  requiring  banks  to  keep 
twelve  and  a-half  per  cent,  in  specie  ort  the  amount  of  their  notes  was 
repealed.  Banks  were  made  liable  to  the  inspection  and  supervision  of 
Bank  Commissioners. 

In  February,  1840,  it  was  reported  that  there  was  a  great  decline  in  prices 
at  New  York  and  distress  for  capital.  Little  business  was  being  done, 
rents  had  fallen  from  thirty  per  cent,  to  fifty  per  cent.  Twenty-four  estab- 
lishments at  Paterson  were  idle.*  During  the  spring  there  were  .<;till  some 
failures;  southern  remittances  did  not  come  to  hand;  the  banks  werp  strong 
in  specie. t  In  May,  the  law  compelling  the  country  banks  to  .eaeem  in 
Albany  or  New  York  at  one-half  of  one  per  cent  discount,  was  going  into 
operation,  it  produced  some  difficulty,  as  the  current  discount  was  from 
one  and  a-half  to  two  and  a-half  per  cent. 

The  amount  of  capital  invested  by  New  York  and  Philadelphia  in  south- 
ern and  southwestern  banks  was  estimated  at  $15  millions,  and  this  was 
held  to  account,  in  some  degree,  for  the  embarrassment  experienced  in 
those  cities  in  1840.  J 

The  Bank  Commissioners  of  New  York  pointed  out  in  their  report  of 
1 84 1,  that  the  failure  of  one  large  bank  might  produce  a  loss  so  great  that 
the  annual  income  of  the  safety  fund  would  not  pay  the  interest  on  the  loss. 
They  referred  to  one  bank  whose  liabilities  were  $7.6  millions  in  1837,  and 
if  large  federal  deposits  were  again  placed  in  any  bank,  the  same  state  of 
things  might  recur. 

January  1,  1841,  the  safety  fund  amounted  to  $914,342.  Up  to  January 
I,  1842,  the  Treasury  had  advanced  for  the  redemption  of  the  circulating 
notes  of  insolvent  banks,  under  the  act  of  1837,  $549,885.  On  that  date  the 
solvent  banks  were  bound  to  pay  in  $183,342.  The  Comptroller  construed 
the  act  of  1837  that  the  capital  of  the  fund  was  never  to  be  reduced  below 
one-third  of  its  amount  by  the  redemption  of  notes  in  anticipation  of  the 
liquidation  of  the  bank's  own  assets,  so  that  the  only  amount  available  was 
$243,108.  Safety  fund  banks  had  failed  in  1841  with  $950,000  in  circula- 
tion. The  capital  of  the  remaining  safety  fund  banks  was  $30.7  millions, 
and  consequently  the  annual  contribution,  $153,507. 

The  State  now  borrowed  the  safety  fund,  consisting  at  the  time  of 
$343,436,  and  spent  it  on  the  public  works. 

In  March,  1841,  there  were  twenty  banks  in  central  and  western  New 
York  which  failed  to  redeem  their  notes  in  Albany  or  New  York,  as  required 
by  the  statute  of  May  4,  1840. 

The  decline  in  State  stocks  had  so  impaired  the  securities  deposited 


■  57  NilM,  416. 


t  58  NiUs,  100. 


X  Raguet ;  Currency  and  Banking,  137. 


COURSE  OF  THE  CRISIS;  1840-41. 


331 


under  the  free  banking  law  tliat  a  panic  arose  in  regard  to  the  free  banks  in 
March.  The  notes  of  twenty-three  of  thein  were  rejected,  and  all  the 
safety  fund  and  free  bank  notes  were  at  a  discount.  The  New  York  banks 
were  refusing  new  accounts.  New  York  notes  were  not  then  taken  on 
New  England  railroads.* 

A  number  of  free  banks  failed  at  this  time  in  connection  with  the  decline 
in  value  of  the  securities  deposited  by  them  for  their  circulation,  but  not  on 
account  of  it.  "These  stocks  had  not  only  been  purchased  at  very  high 
prices  originally,  but  on  credit,  and  without  any  means  or  resources,  in 
many  cases,  for  the  payment  of  the  debt  thus  created.  The  associations  had 
been  put  into  operation  by  borrowers  instead  of  lenders  of  money,  and  the 
circulating  notes  had  been  employed  to  relieve  the  old  embarrassments  of  the 
proprietors  instead  of  being  used  either  in  the  discount  of  business  paper  or 
even  in  the  payment  of  the  debt  contracted  in  the  purchase  of  the  securities."t 

On  the  3d  of  August,  the  Comptroller  sold  the  securities  of  twelve  free 
banks,  of  which  six  were  in  Buffalo.  The  securities  of  seven  of  these  banks, 
consisting  largely  of  mortgages  on  unproductive  property  in  Buffalo,  which 
were  in  the  fund  at  a  valuation  of  $169, 540,  sold  for  $97, 1 16.| 

In  September,  the  North  American  Trust  and  Banking  Company  was  put 
in  the  hands  of  a  receiver.  This  bank  was  organized  in  the  summer  of  1838. 
It  was  intended  to  have  a  capital  of$50  millions,  but  started  with  $2  millions, 
consisting  of  bonds  and  mortgages.  It  was  intended  that  it  should  obtain 
the  federal  deposits.     It  never  had  any  solidity.g 

The  Commercial  Bank  failed  at  the  same  time.  It  had  been  founded  in 
1833,  in  order  to  get  a  part  of  the  public  deposits.  The  Comptroller  of  the 
State  advertised  for  a  loan  of  $120,000  at  six  per  cent,  in  order  to  redeem  its 
notes,  because  the  safety  fund  then  existed  only  as  a  credit  due  from  the 
State. 

in  December,  it  was  reported  that  few  brokers  would  buy  the  notes  of 
any  of  the  free  banking  associations  and  "the  notes  of  many  of  the  safety 
fund  banks  of  the  interior  are  regarded  with  great  distrust."||  In  the  year 
1 84 1,  twenty-five  free  banks  and  ten  safety  fund  banks  failed. ■[ 

Gouge**  gives  the  following  table  of  circulation  in  the  State  of  New  York, 
which  shows  the  marvellous  fluctuations  to  which  it  had  been  subjected: 


Date 

Safety  Funds  Banks. 

Free  Banks. 

Tota 

•8?7J 

anu 

ary 

I  St. 

$24.1 

millions. 

none. 

$24.1 

mi 

llions. 

1838 

12.4 

( t 

12.4 

1839 

19.3 

$2.5  millions. 

21.8 

1840 

10.3 

6.0 

16.3 

1 84 1 

15.2 

S.3        " 

20.  S 

1842 

8.1 

4.0       " 

12.  I 

♦  00  Niles.  ^92.  t  Bank  Commissioners,  January  26,  1S42.  %  Gouge;  Journal  ofBankini;,  ^4. 

f  Gouge,  Journal  of  Banking,  87.  |  Gouge  ;  Jour.ial  of  Banking.  184.  1  Elliot's  Funding,  1 176. 

♦•  Journal  of  Banking,  2-,o.     The  figures  for  1841  were  estimated. 

22 


rv.li:  i' 


n-il 


\  15 


\     '    ^7 


I :  fe 


338 


A  HISTORY  OF  BANKING. 


In  March,  1840,  affiiirs  between  the  banks  at  Philadelphia  were  in  great 
confusion.  Each  bank  refused  to  issue  its  own  notes.  The  Girard  Bank 
and  the  Bank  of  the  United  States,  which  had  been  furnishing  the  current 
circulation,  now  refused  to  do  so,  and  the  other  banks  refused  to  accept  their 
certified  checks.*  The  neglect  of  Pennsylvania  to  provide  for  the  interest 
on  her  debt  by  taxes  produced  a  great  feeling  of  distrust  in  London,  which 
affected  the  value  of  all  the  State  stocks,  f 

The  strong  and  conservative  banks  of  Philadelphia  issued  no  notes  in 
1840.  This  compelled  them  to  do  business  with  the  notes  of  the  others. 
The  United  States  Bank  furnished  a  circulation,  in  1839-40,  and  failed,  owing 
the  good  banks  $7. 5  millions.  Then  the  Girard  furnished  the  circulation  in 
1841  and  failed,  owing  thern  $1  million.  Then  the  Pennsylvania  Bank 
furnished  it  until  the  need  of  paying  $1  million  State  interest  in  its  notes,  and 
the  danger  that  the  same  thing  would  result  to  them  from  it,  if  this  was  done, 
caused  them  to  reject  its  notes;  whereupon  it  failed. J  Still  it  owed  them 
$74S,ooo  when  it  failed.     The  operation  is  thus  described : 

Sound  banks,  wishing  to  resume  as  soon  as  possible,  have  issued  no 
notes.  Having  no  notes  of  their  own  outstanding,  they  have  been  compelled 
to  receive,  on  deposit  and  in  payment  of  debts,  the  notes  of  others,  constituting 
the  circulating  medium.  Unable  to  obtain  any  settlement  of  these  bills,  the 
bills  accumulated  rapidly  until,  unwilling  to  trust  the  issuing  banks  longer, 
the  sound  banks  refused  to  take  them.  This  involved  the  stoppage  of  the 
banks  issuing  them.  "This  has  been  the  general  operation  of  suspension 
throughout  the  South.  The  practical  operation  is  gradually  to  change  the 
assets  of  the  banks  which  issue  no  bills,  consisting  of  individuals'  notes,  into 
the  bills  of  other  banks ;  that  is,  to  convert  their  claims  upon  good  individuals 
into  a  claim  upon  a  bad  bank,  consequently  depreciating  their  assets,  and 
ruining  their  property.  "§ 

in  January,  1840,  the  United  States  Bank  loaned  the  State  of  Pennsylvania 
its  share  of  a  loan  made  by  all  the  banks,  $870,000.  No  dividend  was  made 
at  that  time,  although  the  Dividend  Committee  figured  out  a  surplus  of  $5.2 
millions. 

The  shares  fell  two  pounds  sterling  in  England  on  the  news  that  there 
was  no  dividend.  In  April  the  stock  was  quoted  here  at  78  1-3.  in  June 
the  six  per  cent,  bonds  of  the  Bank  were  at  98.  In  September,  Jaudon  came 
home  and  was  reported  to  have  brought  with  him  a  hundred  thousand  sov- 
ereigns for  the  Bank.  His  errand  was  understood  to  be  \  1  bring  about 
resumption.il  He  had  exhausted  his  system  of  finance.  If  'i^  was  to  do 
anything  to  escape  from  his  position  and  go  on,  he  must  pass  over  to  the 
system  of  hard  cash. 

Governor  Letcher  of  Kentucky,  in  his  message  of  1840,  bewailed  the 
destruction  of  the  United  States  Bank,  not  only  because  the  local  banks 


•  58  Niles,  32.  t  Raguet;  Currency  and  Banking,  307.  %  See  page  355. 

■"  Democratic  RevitfA.  March,  1842;  no  doubt  by  Gouge.  |  Applcton,  Currency  (ib.ir),  17. 


I'n 


COURSE  OF  THE  CRISIS;  1840-41. 


3^9 


could  not  provide  a  uniform  and  sound  currency,  but  also  because  they 
could  not  provide  domestic  exchange.  The  trade  of  Kentucky,  he  said, 
"without  a  Bank  of  the  United  States,  is  constantly,  and  oppressively,  and 
unjustly  burdened  in  both  directions,  towards  New  Orleans  and  towards  the 
eastern  cities.  Its  bills  on  New  Orleans,  of  which  it  is  generally  a  creditor, 
are  usually  sold  at  a  discount  of  two  per  cent.,  besides  interest,  while 
remittances  on  the  eastward,  of  which  we  are  generally  a  debtor,  command 
a  premium  of  from  two  per  cent,  to  three  per  cent.  During  the  existence 
of  the  branches  of  the  United  States  Bank  they  purchased  generally  the  bills 
of  our  traders  on  New  Orleans  at  from  one  per  cent,  to  one  and  a-half  per 
cent,  discount,  and  supplied  remittances  in  great  abundance  to  any  part  of 
the  United  States  at  a  premium  of  one-half  of  one  per  cent.  The  people  of 
Kentucky  have  suffered  constantly  and  severely  by  these  operations,  and 
have  lost  hundreds  of  thousands  of  dollars  for  the  want  of  a  Bank  of  the 
United  States." 

The  banks  of  the  Mississippi  Valley  very  much  preferred  the  exchange 
business  to  the  discounting  of  notes.  In  the  former  they  escaped  the 
restrictions  of  the  usury  law  and  also  the  necessity  of  making  renewals. 
The  exchange  business  was  therefore  more  profitable  and  more  punctual.* 

In  the  Pennsylvania  Legislature,!  in  1840,  there  was  a  strong  party  of 
radical  democrats,  which  was  greatly  irritated  against  the  banks,  especially 
against  the  Bank  of  the  United  States.  The  latter  had,  therefore,  great 
cause  to  apprehend  adverse  legislation,  especially  in  the  way  of  a  peremp- 
tory command  to  resume.  A  committee  of  the  directors  was  appointed,  of 
which  George  Handy  was  the  only  active  and  important  member,  to  watch 
legislation  and  take  measures  to  defeat  any  which  should  be  hostile.  Handy 
employed  one  or  two  experienced  lobbyists;  but  in  the  course  of  the  winter 
and  spring  there  were  a  half-dozen  persons  who  were  active  at  Harrisburg 
in  the  interest  of  the  Bank  and  who  were  in  the  end  paid  by  it.  It  was 
inevitable  that  some  action  would  be  taken,  and  the  points  which  the  Bank 
wanted  to  secure  were  that  a  date  should  be  set  as  distant  as  possible  for 
resumption,  and  that  all  the  laws  imposing  penalties  for  non-redemption 
should  be  suspended  until  that  time.  It  attained  its  objects.  Two  years 
later  an  investigation  was  made,  in  which  all  these  proceedings  came  to 
light,  and  the  correspondence  of  the  Bank's  agents  with  Handy,  consisting 
of  one  hundred  and  nine  letters,  were  published. |  The  Investigating  Com- 
mittee, in  their  report,  construed  all  the  evidence  as  proving  that  the  lobby- 
ists had  duped  the  Bank  and  extorted  money  from  it,  but  had  never  paid 
anything  to  any  member  of  the  Legislature,  and  had  never  really  influenced 
legislation.  This  theory  is  not  adequate  to  the  facts  presented  in  the  testi- 
mony, which  presents  us  a  shameful  picture  of  the  Bank  of  the  United 


•  Answer  of  the  Hank  of  Kentucky  to  Interrogatories.  26  Cong.,  2  Scss.,  4  Ex.,  111. 

+  Writing  in  1S11  Gouge  had  said  tliat  a  bank  ticket  or  a  money  corporation  ticket  was  rarely  seen  at  an  election.     In 
1841  he  said  that  the  banks  took  the  I'leld  openly.    (Journal  of  Banking.  140.) 
X  Report  of  tht'  Committee  on  Bribery  and  Corruption  by  the  Banks  in  1840. 


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A  HISTORY  Oh  BANKING. 


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States  practising  all  the  arts  of  legislative  intrigue  and  corruption,  because  it 
was  in  the  last  stages  of  financial  rottenness;  and  on  the  other  side,  the 
Legislature  of  a  great  State  making  demands  on  the  Bank,  which  would 
have  been  sure  to  ruin  a  solvent  institution,  in  order  to  try  to  carry  on  its  ' '  im- 
provements" without  taxation.  It  required  folly  and  vice  on  both  sides  to 
bring  to  pass  such  a  piece  of  legislation,  in  such  an  arena  and  under  such 
circumstances,  the  lobbyists  of  course  were  triumphant  masters,  and  the 
testimony  shows  that  those  who  were  employed  were  experts,  that  they 
had  a  definite  aim  to  accomplish,  and  that  they  accomplished  it.  The  Bank 
Committee,  that  is,  Handy,  drew  from  the  Bank,  in  this  connection, 
$131,175. 

This  intrigue  is  singularly  interwoven  with  a  political  intrigue,  in  which 
the  Bank  party  are  working  to  give  the  State  to  Van  Buren;  and  the  jealousy 
of  New  York  is  another  strand  which  is  interwoven  through  the  whole. 
The  Governor  of  the  State  was  in  alliance  with  the  Bank  party  and  assisting 
them.  The  leading  men  in  Pennsylvania  at  this  time  had  all  reached  a  con- 
viction of  some  desperate  necessity,  in  respect  to  the  financial  affairs  of  the 
State,  the  city  of  Philadelphia,  and  the  Bank  of  the  United  States,  which 
compelled  the  best  of  men  to  consent  to  measures  which,  at  another  time, 
they  would  have  considered  base  and  criminal. 

The  outcome  of  the  legislative  struggle  was  the  joint  resolutions  of  April 
3,  1840,  by  which  all  the  chartered  banks  were  required  to  resume  January 
15,  1841,  or  forfeit  their  charters;  but  anyone  might  "proceed  to  recover 
and  collect  in  gold  or  silver  coin  the  liabilities  of,  and  the  penalties  recover- 
able from,  any  of  said  banks,  according  to  the  common  law  in  force  in  this 
Commonwealth,  and  not  otherwise."  This  clause  was  the  pride  of  the 
lobbyists.  There  were  no  penalties  by  the  common  law,  and  the  "not 
otherwise"  was  intended  to  cut  off  all  the  statutory  penalties. 

The  courts,  however,  did  not  take  the  view  of  this  device  which  the 
schemers  expected.  It  was  held  that  the  Legislature  never  could  ivive 
intended  to  appoint  a  remedy  which  did  not  exist,  or,  in  that  way,  to  prescribe 
a  denial  of  justice.  Hence  a  demand  was  assumed  to  have  been  made, 
since  it  was  not  denied,  and  twelve  per  cent,  was  awarded  from  the  time  of 
commencing  suit.* 

The  next  section  of  the  act  prescribed  the  method  of  ascertaining  that  a 
bank  did  not  redeem  and  the  method  of  enforcing  forfeiture.  No  such  law 
had  ever  been  enforced  except  in  case  of  absolute  bankruptcy,  and  the  action 
of  the  courts  on  several  cases  brought  by  Kuhn  showed  that  they  felt  called 
upon  by  some  considerations  of  public  policy  to  construe  all  the  laws 
beneficently  in  favor  of  the  banks.  It  was  further  provided  that  banks  which 
had  suspended  since  October  9,  1839,  or  should  do  so  before  January  15, 
1841,  must  lend  to  the  State,  pro  rata  of  their  capital,  within  one  year,  not 
over  $3  millions  at  not  over  five  per  cent. ;  the  sum  to  be  expended  on  the 

*  6  Whanon,  585:  Dist.  Ct.  Phil. ;  aflirmed,  2  W.ilts  and  Sergeant,  443.     (1841.) 


,.T 


COURSE  OF  THE  CR/S/S;  1840-41. 


541 


debts  and  interest  of  the  State,  and  on  repairs  and  continuation  of  the  public 
works,  for  which  certificates  should  be  given  in  such  sums  as  the  lending 
banks  might  demand,  and  transferable  in  such  manner  as  the  Governor 
might  direct,  payable  in  not  over  twenty-five  years.  There  was  more  lobby 
trickery  in  these  provisions.  Banks  might  issue  their  notes,  and  pay  not 
over  six  per  cent,  dividends,  as  if  paying  specie,  until  the  day  set  for 
resumption. 

In  May  the  Legislature  reassembled,  when  the  House  ordered  the  Bank 
to  lend  to  the  State  $4  millions  at  four  per  cent,  or  forfeit  its  charter; 
$3  millions  being  at  the  same  time  appropriated  to  public  works.  The 
Senate  struck  out  the  compulsion  on  the  Bank  and  left  the  loan  to  be  raised 
by  ordinary  methods.* 

The  land  bank  notion  also  now  made  its  appearance  again  in  Pennsyl- 
vania. A  bank,  with  $soo,ooo  capital  was  chartered  by  the  Legislature,  half 
the  stock  to  be  paid  in  in  specie  and  half  by  mortgage  of  the  full  value  of  the 
stock.  It  was  vetoed  by  the  Governor,  June  11,  1840,  because  there  were 
too  many  banks,  and  those  which  existed  were  not  paying  their  debts; 
without  regard  to  the  merits  of  the  plan.f 

In  October,  1840,  the  banks  of  Pennsylvania  were  preparing  to  resume, 
but  the  Governor  called  on  them  to  take  another  loan  of  a  million  under  the 
resolutions  of  April  3,  1840.  Philadelphia  was  heavily  indebted  to  the  East, 
and  the  United  States  Bank  wanted  a  loan  from  the  other  banks  to  help  it 
to  resume.  The  latter  request  could  not  be  granted  unless  an  extension 
could  be  obtained  on  the  former  debt.  The  extension  was  also  necessary  to 
resumption.  Confidence  in  the  United  States  Bank,  outside  of  Philadelphia 
was  entirely  gone.|  It  does  not  seem  possible  that  it  could  have  had  credit 
amongst  men  of  affairs  after  October,  1839,  but  there  certainly  was  a  stubborn 
faith  in  it,  and  the  literature  does  not  by  any  means  show  a  widespread 
popular  discredit  of  it. 

Jaudon  went  back  to  England  in  November  and  published  a  statement  in 
which  he  put  the  liabilities  of  the  Bank  at  $72.8  millions,  including  $12.6 
millions  in  Europe  and  $5.4  millions  to  other  banks.  The  assets  he  stated  at 
$76.1  millions,  including  $2.8  millions  specie.§  The  banks  of  Philadelphia 
owed  $2.5  millions  to  New  York  and  Boston.  They  applied  to  Boston  to 
have  balances  put  on  interest  to  the  amount  of  $1.5  millions.  It  is  stated 
that  on  account  of  jealousy  of  New  York  they  were  not  willing  to  apply 
there.  New  York  was  believed  by  the  Philadelphians  to  desire  the  failure  of 
the  Bank  of  the  United  States.  Nevertheless  the  former  offered  to  put 
$1  million  of  debt  on  interest.  "The  Philadelphians  are  a  peculiar  people  in 
the  matter  of  currency.  They  have  a  strange  fondness  for  inconvertible 
paper.  "II 

Nathan  Appleton  blamed  the  banks  of  Philadelphia  for  entangling  them- 


{. 


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^  -4 


V        '  s 


•  58  Niles,  199 ;  229. 

$  59  Nil",  257. 


t  Treasury  Report,  March  1,  1841. 


X  1  Gallatin's  Writings,  405. 
I  59  Niles,  257. 


''  i 


34^ 


A  HISTORY  OF  BANKING. 


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selves  with  the  Bank  of  the  United  States  in  1839,  which  was  the  cause  of 
the  embarrassments  of  all  the  banks  of  the  great  commercial  cities  during 
the  eighteen  months  following.* 

When  the  Bank  of  the  United  States  attempted  to  resume  it  held  24,714 
of  its  own  shares.  It  had  in  specie,  on  the  21st  of  December,  $2,171,722. 
The  circulation  of  the  old  Bank  still  out  was  $547,8^6;  of  the  new  Bank, 
$8,788,144;  post-notes  outstanding,  $1,887,658.  it  owed  the  United  States 
on  a  bond  $633,643. 

On  the  4th  of  January,  the  stockholders'  meeting  took  place,  which 
caused  a  report  to  be  published  with  a  list  of  the  securities  held  by  the  Bank. 
These  were  seen  at  a  glance  to  be  among  the  poorest  on  the  market. 
"Bicknell's  Reporter"  estimated  the  losses,  at  the  market  price  of  these 
stocks,  at  $17.3  millions.  The  stock  fell  $17  on  the  publication  of  this 
report. 

On  the  15th,  the  banks  resumed.  The  Philadelphia  banks  within  the 
next  three  weeks  paid  out  $1 1.3  millions,  of  which  the  Bank  of  the  United 
States  paid  out  $6  millions.  The  others  tried  to  separate  themselves  from 
the  Bank  of  the  United  States,  f  The  latter  failed  Feb-'uary  4th.  The  deposits 
when  it  failed  were  stated  at  %2.2  millions,  and  the  rotes  out  at  $2.8  millions. 
This  does  not  include  the  notes  of  the  old  Bank,  most  of  which  were  sup- 
posed to  be  lost.  The  stock  fell  $30  per  share  on  this  failure.  In  a  report 
of  the  directors  to  the  stockholders,  April  3,  1 841,  it  was  stated  that  after  the 
Philadelphia  banks  had  exchanged  $5  millions  of  their  credit  for  post-notes 
at  nine  and  eighteeen  months,  they  still  had  $1.5  millions  in  notes  of  the 
Bank  of  the  United  States  for  which  they  demanded  specie.  This  was  paid. 
Then  another  call  for  $1.  i  millions  was  paid  to  creditors  in  the  East  who  had 
suits  pending  which  they  then  withdrew.  In  January  also,  the  Bank  lent 
the  State  $400,000  in  specie,  and  the  other  banks  made  a  loan  to  it  in  notes 
of  the  Bank  of  the  United  States,  which  thus  became  a  specie  demand  on  the 
latter.  After  February  4th,  the  Philadelphia  banks  refused  the  notes  of  the 
Bank  of  the  United  States.  It  was  a  run  from  the  eastward,  therefore, 
which  overthrew  the  Bank. 

The  Bank,  when  it  failed,  had  eight  agencies  outside  of  Pennsylvania 
and  three  offices  in  that  State.  The  number  of  stockholders  in  Europe  and 
elsewhere  abroad  was  1,390;  in  Pennsylvania,  1,481;  in  the  United  States, 
outside  of  Pennsylvania,  1,658.  Outof$35  millions  capital,  $27  millions  were 
held  abroad,  $6  millions  in  New  York,  and  $2  millions  in  Philadelphia.  The 
number  of  persons  owning  five  shares  or  less  was  864;  between  five  and 
ten,  661;  between  ten  and  twenty,  732;  between  twenty  and  fifty,  994; 
between  fifty  and  one  hundred,  588;  between  one  hundred  and  five  hun- 
dred, 614;  over  five  hundred,  80.  A  great  amount  was  held  on  the  islands 
of  Guernsey  and  Jersey.  It  was  equal  to  three  or  four  pounds  per  head 
of  the  population.     The  news  of  the  failure  reached  England  with  the  news 


*  5  Proc.  Mass.  Hist.  Soc,  290, 


t  59  Niles,  405. 


COURSE  OF  THE  CR/S/S;  1840-41. 


343 


of  the  resolution  of  Congress,  threatening  to  support  New  York  in  the 
trial  of  McLeod,  and  produced  a  slight  panic.  The  State  stocks,  however, 
had  not,  at  this  time,  undergone  any  great  decline.  The  London  "Times" 
said  that  £2.4  millions  sterling  borrowed  in  England  by  the  Bank  had  been 
so  much  saved  for  New  York.  "Such  a  wreck  of  a  great  banking  concern 
has  probably  never  before  occurred."  The  shares  were  quoted  at  ^4  icv., 
nominal.     All  its  drafts  were  accepted  however. 

February  13th,  the  Bank  addressed  a  memorial  to  the  Legislature  praying 
not  to  be  separated  from  the  other  banks  in  the  relief  which  it  was  proposed 
to  allow  them  by  measures  then  under  discussion.  The  memorial  states 
that  the  Bank  has  paid  the  State  $3,022,662,  has  subscribed  $4is,ooo  to 
railroads,  etc.,  and  has  loaned  the  State  $8,620,000  within  five  years  of 
depression.  In  March,  an  act  was  passed  which  in  many  respects  was 
nearer  to  what  the  lobbyists  of  the  Bank  of  the  United  States  wanted  than 
the  bill  which  was  passed  the  previous  year.  The  extra  penalties  for  sus- 
pension were  repealed.  Permission  was  given  to  the  banks  to  issue  small 
notes  for  five  years  to  the  extent  of  fifteen  per  cent,  of  their  capital;  loans  to 
directors  and  proxy  voting  were  restricted;  five  per  cent,  dividends  might  be 
made  during  suspension;  the  Bank  of  the  United  States  might  reduce  its 
capital  to  $14  millions,  if  it  desired  to  do  so,  and  was  released  from  a  part 
of  the  bonus.  This  bill  was  vetoed  and  failed.*  The  struggle  was  then 
re-opened,  and  finally  on  the  last  day  of  the  session,  May  4,  1841,  the 
so-called  relief  act  was  passed  over  the  Governor's  veto.  The  act  was  so 
loosely  drawn  that  it  is  not  easy  to  understand  the  relation  of  its  separate 
parts. 

A  State  loan  of  $3  millions  at  five  per  cent,  was  to  be  issued,  no  bond 
to  be  less  than  $100;  the  banks,  with  the  exception  of  the  Bank  of  the 
United  States,  might  subscribe  to  this  loan  in  their  ones,  twos,  and  threes, 
which  bank  notes  should  be  redeemable  in  the  State  bonds  whenever  pre- 
sented at  their  counters  (/'.  e.,  after  the  State  had  put  them  in  circulation); 
notes  redeemed  to  be  marked  "canceled;"  the  bank's  charter  to  be  for- 
feited if  this  redemption  did  not  take  place  within  ten  days;  the  banks 
were  to  have  one  per  cent,  for  the  loan  while  the  notes  were  out,  but  were 
to  pay  the  interest  on  the  State  bonds  with  which  they  redeemed  their 
notes,  and  to  deduct  that  interest  from  the  dividend  tax  which  they 
would  otherwise  have  to  pay  the  State.  The  small  notes  issued  in  this  way 
were  to  be  receivable  for  debts  to  the  State,  re-issuable  by  the  banks  and 
the  State,  and  receivable  by  the  banks  for  debts  and  on  deposit.  The  banks 
might  pay  five  per  cent,  dividend  in  spite  of  suspension.  The  banks  which, 
having  paid  a  bonus,  had  no  tax  on  dividends  to  pay,  might  deposit  State 
stocks  with  the  Auditor-general  to  the  amount  of  five  per  cent,  on  their 
paid-up  capital,  and  issue  notes  to  that  amount  in  denominations  not  less 
than  fives.     The  dividend-paying  banks  might  also  take  this  latter  course 

•  60  Niles.  71. 


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to  the  extent  of  seven  per  cent,  of  their  capital.  Charter  forfeitures,  on 
account  of  suspension,  were  not  to  be  enforced  until  this  loan  was  repaid. 
No  penalty  in  excess  of  six  per  cent,  was  to  be  exacted  from  any  bank  which 
complied  with  this  act.  The  Bank  of  the  United  States  was  excluded  from 
it,  unless  it  accepted  this  act  and  made  itself  liable  to  all  future  legislation. 
The  Governor  vetoed  this  act  because  it  would  make  the  suspension  per- 
petual,— that  is,  until  the  loan  provided  for  in  the  act  was  paid.  Gouge 
said  of  the  act:  "This  is  a  deplorable  state  of  things;  a  bankrupt  State 
orders  the  emission  of  upwards  of  $3  millions  of  State  paper  money,  redeem- 
able only  in  State  stocks,  which  were  at  the  time  the  act  was  passed  twenty 
per  cent,  below  par,  which  have  since  fallen  several  per  cent,  more  and 
which  may  fall  no  one  knows  how  low.  Nor  is  this  all.  It  authorizes  this 
State  paper  money  to  be  increased  in  amount  to  between  $5  millions  and 
$6  millions,  and  in  order  to  obtain  circulation  for  it  consents  that  the  banks 
shall,  if  they  will  receive  it  in  payment  of  debts,  postpone  the  resumption 
of  specie  payments  as  long  as  shall  suit  their  own  convenience."* 

Gallatin's  comment  on  this  law  was  as  follows : 

"The  banks  of  Philadelphia,  notwithstanding  the  difficulties  which  they 
had  to  encounter,  had  succeeded  in  keeping  their  currency,  their  deposits, 
their  liabilities  payable  on  demand,  all  which  is  generally  called  "Philadel- 
phia funds,"  at  a  discount,  compared  with  specie,  of  less  than  five  per  cent. 
An  emission  of  a  new  species  of  currency  is  now  authorized,  which,  being 
only  a  promise  to  issue  a  State  stock  to  the  same  amount,  is,  on  the  day 
when  it  is  issued,  worth  intrinsically  no  more  than  that  stock,  or  less  than 
eighty  per  cent,  of  its  nominal  value.  It  may  be  that  the  demand  created 
by  having  made  that  currency  receivable  in  payment  of  debts  to  the  Com- 
monwealth and  to  the  banks  may  enhance  that  value.  This  is  altogether 
conjectural,  and  it  cannot  certainly  be  expected  that  it  will  become  equal  to 
that  of  the  actual  currency  at  this  moment  of  the  Philadelphia  banks.  Under 
the  most  favorable  aspect  it  is  still  a  legalized  emission  of  a  depreciated, 
fluctuating,  and  irredeemable  paper,  analogous  to  a  falsification  of  the  legal 
coin  of  the  country.  And  in  order  to  carry  this  plan  into  effect  it  has  been 
deemed  necessary  to  compel  the  banks  to  receive  that  paper  in  payment  of 
the  debts  due  to  them,  and  to  give  a  solemn  legislative  sanction  to  a  pro- 
tracted suspension  of  specie  payments;  that  is  to  say,  to  a  continued 
immoral  and  illegal  violation  of  engagements  and  contracts  for  a  term  which 
may  be  not  less  than  five  years,  "f 

April  17th,  at  a  meeting  of  the  stockholders  of  the  United  States  Bank,  it 
was  voted  to  accept  the  relief  bill  and  to  become  subject  to  any  future 
general  law  of  the  State  about  banks;  also  that  the  directors  should  give 
notice  of  an  application  to  reduce  the  capital  and  change  the  name.| 

It  was  at  this  time  that  the  Committee  of  Investigation  reported,  which 


*  Journal  of  Banking,  6. 
+  3  Gallatin's  Writings,  411, 
X  60  Niles,  191. 


Bollmann  proposed  a  scheme  uf  currency,  in  1816,  like  this  relief  system.     See  page  75. 


COURSE  OF  THE  CR/S/S:  1840-41. 


345 


had  been  appointed  at  the  stockholders'  meeting  of  January  4th.  The 
general  result  of  the  investigation  was  that  the  capital  was  lost  in  bad  debts 
and  in  the  stocks  of  enterprises  which  could  not,  at  best,  be  remunerative 
for  a  long  time.  At  the  estimate  put  on  the  assets  by  the  Committee,  there 
were  $14.8  millions  to  meet  $32. <>  millions  of  capital;  the  Bank  owning 
part  of  its  own  shares.  The  debt  in  Europe  exceeded  the  active  loans  here. 
The  "bills  receivable"  had  been  gradually  reduced.  In  March,  1840,  they 
were  still  S4  millions.  During  the  following  year  they  were  reduced  by 
transferring  to  the  Bank  the  stocks  in  which  the  speculators  had  been 
operating.  The  Bank  had,  during  the  State  charter,  taken  $31  millions  in 
stocks,  etc.,  in  settlement  of  loans  and  advances.  "Bills  receivable"  were 
still  $1.4  millions.  Some  of  them  had  been  transferred  from  "suspended 
debt"  to  "active  debt,"  having  been  changed  into  bills  discounted  at 
deferred  periods  of  maturity. 

Biddle  settled  one-half  the  loss  on  cotton*  with  interest  by  giving  Texan 
bonds  for  about  two-thirds  of  the  amount,  and  promising  Texan  bonds  for 
the  remainder.  In  their  supplementary  report  of  May,  the  Committee  of 
Investigation  say  that  the  $8oo,ooot  appear  not  to  have  been  liquidated 
profits  of  the  cotton  transactions,  but,  in  part,  anticipated  profits,  and  they 
call  on  Biddle  to  repay.  "We  take  the  statement,"  they  say,  "as  correct, 
although  there  are  some  plain  mistakes  in  the  calculations."  There  are  no 
in  elligible  statements  in  the  record  of  the  profit  and  loss  of  the  cotton  oper- 
ations, and  we  must  accept  the  comment  of  this  Committee  as  proof  that  it 
is  impossible  now  to  obtain  any.  Cowperthwaite  had  to  pay  one-quarter 
of  the  loss  with  interest.  He  gave  land  and  stocks  of  very  little  value  and 
$16,000  in  cash.  Wilder  paid  one-quarter  by  land  and  sundries,  and 
$49,793  in  cash.  It  is  suggested  that  there  was  some  one  behind  him. 
Who  it  was  is  not  known.  The  Committee  calculated  that  the  stock  of  the 
Bank  was  worth  $46.94  per  share  for  the  number  of  shares  outstanding. 
Biddle  published  a  criticism  of  the  Investigating  Committee's  report,  which 
led  to  a  supplementary  report  and  rejoinder.  He  had  endeavored  to  break 
the  point  of  their  condemnation  by  saying  that  the  Bank  had  been  support- 
ing the  Reading  Railroad  while  the  Committee  were  interested  in  the 
Schuylkill  Navigation  Company,  which  was  a  rival.  Dunlap  published  a 
statement  that  the  contract  guaranteed  by  the  Bank  in  his  name  was  for  the 
account  of  the  Bank.  He  took  $1  million  of  Illinois  bonds  which  were  to  be 
paid  for  in  ten  monthly  installments.  All  the  bonds  were  sent  to  London 
and  hypothecated  there  for  loans  to  the  Bank  of  the  United  States,  to  which 
the  interest  on  them  was  paid.  Biddle  denied  that  the  Bank  ever  owned  a 
bale  of  cotton.  He  claimed  that  the  cotton  operations  paid  the  debts  of  the 
American  people,  corrected  the  exchanges,  saved  the  Bank,  gave  a  price  for 
cotton  to  the  southerners,  and  enabled  him  to  save  New  York.  He  said 
that  the  losses  on  cotton  would  have  been  paid,  but  that  he  thought  his 


'tS 


*  See  page  309. 


+  See  page  302. 


J46 


A  HISTORY  OF  RANKING, 


1 1 


h 


V  ' 


property  had  been  sacrificed  for  the  interests  of  the  Bank.  He  only  paid 
what  he  did  pay  for  the  salte  of  peace,  and  amongst  the  different  securities 
which  he  offered,  the  Bank  chose  the  Texan  bonds.  In  a  second  letter,  he 
declares  that  the  Bank  was  sound  and  prosperous  when  he  left  it.  He  is 
not  to  blame,  he  says,  that  stocks  have  fallen  within  two  years.  He  quotes 
a  letter  of  Cowperthwaite  to  him,  in  which  all  sulisequent  calamities  are 
traced  to  the  premature  resumption  in  1838,  but  Biddle  attributes  the  ruin  of 
the  Bank  to  the  bill  transaction  in  August,  1819,  and  the  fatal  attempt  to 
resume  in  1841.  He  says  that  the  Court  had  decided  that  the  Bank  charter 
could  not  be  forfeited  for  non-payment  of  specie,  and  that  the  Bank  ought 
not  to  have  obeyed  the  Legislature.  All  the  banks  ought  to  have  withheld 
the  $800,000  loan  from  the  State,  in  January,  1841,  unless  it  would  extend 
the  suspension.  That  is  to  say,  he  still  adhered  to  the  old  policy  of  bluff 
and  bounce  which  had  been  pursued  by  the  Bank  during  the  whole  period 
of  the  State  charter.  In  his  third  letter,  he  enlarges  upon  the  rivalry  of  the 
Schuylkill  Navigation  Company  and  the  hostile  animus  of  the  Committee, 
and  at  last  runs  off  into  personalities.  In  a  fourth  letter  he  denied  favoritism 
to  Thomas  Biddle.  In  a  fifth  he  defended  Jaudon,  and  in  a  sixth,  he  said 
that  all  the  items  of  account  which  the  Committee  say  are  not  explained 
were  passed  by  the  directors.  He  tried  to  strip  himself  of  responsibility  for 
the  Bank,  and  to  answer  only  for  his  own  person,  but  he  had  been  so  long 
identified  with  the  Bank  that  he  could  not  persuade  the  public  to  take  this 
view. 

The  letters  written  by  Biddle  for  the  sake  of  influencing  public  opinion 
would  make  a  large  collection.  In  respect  to  all  those  which  were  written 
after  1836,  we  have  the  means  of  knowing  that  he  was  not  honest  and 
sincere.  He  was  trying  to  deceive  by  false  reasons,  artful  pretenses,  and 
made-up  excuses.  The  impression  we  gain  from  these  letters  we  cannot 
but  carry  back  to  the  earlier  part  of  the  history,  and  ask  ourselves,  when  we 
feel  disposed  to  believe  that  he  has  made  out  his  case,  whether  we  are  not 
the  victims  of  his  deceit  ?* 

Gallatin  said  that  the  United  States  Bank  had  been,  since  1837,  the  chief 
cause  of  suspension  and  of  delay  in  resuming.  "In  every  respect  it  has 
been  a  public  nuisance."  "The  mismanagement  and  gross  neglect  which 
could,  in  a  few  years,  devour  two-thirds  of  a  capital  of  $315  millions  are 
incomprehensible,  and  have  no  parallel  in  the  history  of  banks."  "How, 
after  so  many  violations  of  its  charter,  its  existence  has  been  so  long  pro- 
tracted is  indeed  unintelligible."  There  seems  to  have  been  some  hope  as 
late  as  April  or  May  that  the  Bank  could  be  revived,  but  suits  began  to 
multiply  against  it.  The  total  number  which  were  begun  from  January  to 
September  was  about  one  hundred  and  eighty.  Over  one  hundred  judg- 
ments were  obtained  against  it,  some  for  $100,  some  for  $100,000.  In  May, 
another  attempt  was  made  to  bring  about  a  forfeiture  of  its  charter  on  account 

*  See  page  2o6. 


COURSE  OF  THE  CR/S/S;  1840-41. 


M7 


of  the  refusal  to  pay  specie,  but  the  plaintiff  did  not  keep  the  notes  during 
the  three  months  limit,  which  was  provided  for  between  tht:  lirst  demand 
and  the  second  demand.     Hence  he  lost  the  right  to  maintain  the  suit.* 

"In  1841  [at  New  YorkJ  the  necessity  of  again  suspending  was  freely 
discussed,  but  such  a  course  was  strongly  opposed  by  the  larger  banks. 
These  sold  their  claims  on  Philadelphia  at  as  high  a  rate  of  discount  as 
thirteen  per  cent.  Mr.  Newbold,  of  the  Bank  of  America,  brought  at  one 
time  from  Philadelphia  $400,000  in  specie,  which  enabled  the  banks  of  that 
city  to  maintain  specie  payments. "f 

The  Wilmington  banks  suspended  upon  the  news  from  Philadelphia. 
The  Legislature  of  Delaware  suspended  the  twelve  per  cent,  penalty.}:  The 
Baltimore  banks  failed  again,  February  8th,  after  losing  $100,000  specie. 
March  I'jth,  the  Georgia  Railroad  Bank  failed,  after  paying  out  $200,000.^ 
On  the  following  day  the  North  Carolina  banks  failed.  Those  of  Virginia 
held  out  until  April  6th,  suffering  heavy  runs.]]  As  for  the  banks  further 
south  and  west,  it  is  difficult  to  say  whether  and  when  they  resumed,  and 
when  they  suspended  again.  1 

The  capital  of  all  the  banks  in  the  United  States  which  failed  in  1841 
was  nearly  $70  millions,  with  a  circulation  of  $24  millions.  The  total  circu- 
lation was  reduced  below  the  point  at  which  it  stood  in  1814.** 

Inasmuch  as  the  relief  notes  were  receivable  at  the  banks,  they  floated  at 
bank  par  during  184 1.  In  June,  it  was  reported  that  money  at  Philadelphia 
was  at  eight  and  ten  per  cent,  per  annum ;  the  small  notes  were  not  yet  out. 
Five  Philadelphia  banks  had  refused  the  relief  bill  and  would  not  accept  the 
relief  notes,  tf 

Three  counterfeit  detectors  were  published  at  Philadelphia  at  this  time. 
In  an  issue  of  one  of  them,  in  July,  were  described  1,727  counterfeits  on 
bank  notes;  the  greatest  number  on  any  one  denomination  was  on  the 
five's, — namely,  s88.  The  counterfeits  on  the  Bank  of  the  United  States 
were  not  included.  "They  were  so  various  that  one  specimen  from  each 
would  have  sufficed  to  paper  one  side  of  a  room."tJ 

The  whigs,  having  won  the  election  of  1840,  were  most  impatient  to 
undo  everything  which  had  been  done  during  the  last  twelve  years,  and 
President  Harrison  immediately  called  an  extra  session  of  Congress  to  meet 
May  31st.  Upon  liib  death,  the  question  at  once  arose;  What  are  John 
Tyler's  opinions  and  wishes?  His  message  at  the  opening  of  the  extra 
session  disappointed  the  whigs.  It  did  not  respond  at  all  to  the  temper  of 
eager  purpose  in  which  they  were.  Clay  and  Tyler  came  into  collision  at 
once,  the  one  being  the  actual  chief  of  the  party,  the  other  its  official 
representative.  With  the  political  aspects  of  the  period  we  are  not  here 
concerned,  except  so  far  as  they  affected  the  measures  which  were  applied 
in  respect  to  banking  institutions;  but  it  must  be  noted  that  on  that  matter 


'  a  Ashmead,  406.  +  Domttt.  Bank  of  New  York.  87.  t  w  Nilcs,  ^72  ;  60  ditto,  21. 

J6oNiles,  4S.  I  Ibid,  96.  1  See  Chapter  15,  on  the  Liquidation.  •*  Klliot's  Funding,  1 176 

tt  60  Niles,  187,  273.  iX  Gouge  ;  Journal  of  Banking,  :6. 


I     |) 


^1  ?  .  J    ' 


v>l 


J! 


U 


!h 


m 


ml  'i 

It:'" 
pH  •  '  I: 


348 


/^  HISTORY  OF  BANKING. 


they  had  very  positive  influence.  The  whigs  had  a  majority  of  seven  in  the 
Senate  and  forty-nine  in  the  House,  and  Clay  made  up  a  sweeping  program 
of  what  they  meant  to  do,  in  which  it  was  assumed  that  the  President  was 
to  take  the  role  assigned  to  him.  There  were  many  reasons  why  this 
arrogant  behavior  of  Clay  was  galling  to  Tyler,  and  was  calculated  to  set  a 
man  of  his  abilities  and  character  in  very  obstinate  and  resentful  opposition. 
The  first  point  on  Clay's  program  was  the  repcnl  of  the  sub-treasury,  and 
the  second  was  the  charter  of  a  national  bank.  Ti.  ^  first  step  was  accom- 
plished in  the  Senate  June  9th,  29  to  18;  but  Clay  at  once  called  attention  to 
the  fact  that  this  would  revive  the  deposit  act  of  1836,  to  which  he  could 
never  consent,  and  that  the  repeal  of  the  sub-treasury  must  go  with  the 
other  proposed  measures  as  a  consistent  series.  The  House  repealed  both 
the  sub-treasury  and  the  deposit  act,  and  the  Senate  concurred.  This 
carried  things  back  to  the  law  of  1789,  which  was  substantially  the 
independen  treasury  without  the  specie  clause.  There  was  still  the  law  of 
March  3,  1809,  which  allowed  specified  disbursing  officers  to  deposit  public 
money  in  banks. 

The  Senate  called  on  the  Secretary  of  the  Treasury  for  his  project  of  a 
bank.  It  was  called  a  "  Fiscal  Agency,"  and  was  to  be  located  in  the  district 
of  Columbia;  branches  in  the  States  if  they  assent;  capital,  $30  millions; 
Ur.ited  States  to  take  $6  millions;  to  subscribe  $9  millions  for  the  States, 
supposing  that  the  fourth  installment  is  to  be  paid;  government  subscription 
by  a  stock  note  at  five  per  cent.,  redeemable  any  time  after  fifteen  years;  if 
the  fourth  installment  of  the  surplus  revenue  not  paid,  the  States  to  be  per- 
mitted to  subscribe  $10  millions  in  proportion  to  their  population,  issuing 
stock  therefor;  if  the  States  do  not  subscribe,  the  United  States  may  take 
$10  millions;  seven  directors,  of  whom  two  appointed  by  the  President;  each 
branch  to  have  not  more  than  seven  nor  less  than  five  directors,  of  whom 
two  to  be  appointed  by  the  State,  if  the  State  is  a  stockholder,  and  the  rest 
by  the  head  bank;  charter  for  twenty  years  and  two  years  more  to  wind  up. 

This  bill  was  smothered  ir.  committee  in  the  Senate,  the  report  declaring 
outright  that  the  constitutional  power  of  Congress  to  establish  branches 
anywhere  where  the  inteies,''s  of  the  United  States  called  for  them  must  be 
affirmed  and  established.  Clay's  "Fiscal  Bank,"  as  it  was  called,  was  sub- 
stituted for  it,  diti'cring  from  it  principally  in  not  requiring  the  assent  of  the 
States  to  the  establishment  of  branches.  An  amendment  was  made  in  it 
that  thir  assent  should  b  j  assumed,  unless  the  State  Legislature  at  the  next 
session  should  refuse  it,  and  then  Congress  might  override  the  refusal  if  the 
public  interests  required  it.  In  this  form  the  bill  passed  the  Senate,  26  to  23; 
the  House,  ki8  to  97.  Tne  "  Globe"  atoi.ce  declared  that  it  had  information 
that  Tyler  /ould  veto  it.  There  was  grjat  excitement,  and  public  meetings 
were  held  at  Ncvn/  York  both  for  and  -.gainst  the  bill. 

In  Tyler's  veto  message  of  Au;^ust  16,  1841,  he  'aid  his  chief  objection 
on  the  fact  that  the  bill  cieateH  'a  national  bank  to  operate  per  se  over  the 
Union."     He  argues  that  in   '833  the  United   States  Bank  had  carried  its 


|lftF8BUiitBtS'.i.  .■.".^^v„^^j..«itt,'j^^ai(iMi^gi-.-,'iU3f:-jv  ■ -'m,:*izsFZ" 


COURSE  OF  THE  CRISIS;  1840-41. 


49 


exchange  transactions  to  §100  millions  without  the  employment  ol"  extra- 
ordinary means.  "The  currency  of  the  country  became  sound,  and  the 
negotiations  in  the  exchanges  were  carried  on  at  the  lowest  possible  rates. 
The  circulation  was  increased  to  more  than  $22  millions,  and  the  notes  of  the 
Bank  were  regarded  as  equal  to  specie  all  over  tlie  country,  thus  showing 
almost  conclusively  that  it  w.as  the  capacity  to  deal  in  exchanges,  and  not  in 
local  discounts,  which  furnished  these  facilities  and  advantages."  The 
exchange  transactions  produced  tew  losses.  "Its  power  of  local  discount 
has,  in  fact,  proved  to  be  a  I'ruitful  source  of  favoritism  and  corruption,  alike 
destructive  to  the  public  morals  and  to  the  general  weal,"  He  ends  with  a 
declaration  of  his  unalterable  opposition  to  any  bank  created  by  Congess 
with  the  power  to  establish  branches  in  the  States  independently  of  their 
consent. 

At  the  same  time  that  he  vetoed  this  bill,  he  signed  the  repeal  of  the  sub- 
treasury.  The  State  rights  men  of  the  strict  school  to  which  Tyler  belonged 
laid  great  stress  on  the  decision  of  the  Supreme  Court  in  the  case  of  the  Bank 
of  Augusta  vs.  Earle.*  international  law  was  applied  to  the  relations  of  cor- 
porations of  one  Stale  doing  business  in  another.  Formal  assent  was  held 
to  be  necessary  for  a  bank  of  one  State  to  discount  notes  in  another,  but  as 
to  exchange,  asseit  was  assumed  until  formally  refused. 

Another  bank  bill  was  introduced  into  the  House  August  20th,  and 
hastily  passed  the  Congress.  The  capital  was  to  be  $21  millions,  increasable 
to  S3S  millions.     It  was  to  have  agencies  only,  and  to  deal  in  exchange  only. 

in  a  veto  of  this  bill  September  9,  1841,  Tyler  repeated  more  than  once, 
and  with  emphas.s,  his  objection  to  a  national  bank  acting  per  se  over  the 
Union.  "  It  assumes  that  Congress  may  invest  a  local  institution  with  gen- 
eral or  national  powers.  With  the  same  propriety  that  it  may  do  this  m 
regard  to  a  bank  of  the  District  of  Columbia  it  may  as  to  a  State  bank." 
He  asked  for  a  postponement  of  the  subject  to  a  "more  auspicious  period 
for  deliberation."  He  laid  great  stress  on  his  conscientious  and  rel'gious 
motives,  his  reverence  for  the  Constitution,  and  his  desire  for  harmony. 

The  men  of  1841  reasoned  thai  the  issues  ot  a  bank  of  discount  would 
depend  for  their  value  on  the  discount  business.  Hence  the  issues  of  cur- 
rency should  be  divorced  from  that  business;  secondly,  they  reasoned  that 
the  government  deposits,  if  put  in  a  bank  of  discount,  would  be  loaned  and 
could  not  be  rczalled  when  wanted  without  creating  a  panic.  Hence  they 
were  trying  to  create  an  institution  to  issue  currency,  hold  the  government 
deposit,  and  equalize  the  exchanges  without  any  real  banking  function. 
Nearly  all  the  whigs  except  Webster  treated  with  scorn  and  derision  Tylers 
notion  of  a  national  bank.  He  -.ind  his  adherents  were  struggling  with  the 
notion  of  an  Issue  Department  connected  with  the  Treasury.  It  is  not  at  all 
impossible  that,  if  the  plan  could  have  been  set  on  foot,  it  might  have 
developed  into  a  good  solution  of  the  currency  problem. 

♦  n  Peters,  5n. 


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A  HISTORY  OF  BANKING. 


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y 


It  is  impossible  to  resist  the  impression  that  the  zeal  on  behalf  of  a 
national  bank  was  almost  entirely  political.  The  struggle  of  the  last  twelve 
years  had  made  the  bank  a  party  dogma.  At  the  same  time  the  failure  of 
the  United  States  Bank  had  been  so  shameful  and  had  so  wounded  the 
vanity  of  everybody  who  had  been  on  its  side  that  there  was  something 
half-hearted  in  this  fight.  It  was  very  hard  to  carry  on  a  struggle  in 
Congress  to  charter  another  Bank  of  the  United  States  at  the  very  time  when 
the  reports  of  the  Investigating  Committee  of  the  stockholders  of  the  old  one 
were  running  through  the  newspapers  of  the  country  in  all  their  shocking 
newness,  and  when  the  officers  of  the  old  Bank  were  being  subjected  to 
criminal  prosecutions,  whose  futility  was  not  yet  proved.  Gouge  says  that 
many  members  of  Congress  who  voted  for  the  bank  act  were  rejoiced  at  the 
veto. 

During  this  summer  a  great  number  of  amateur  projects  were  put  forward 
for  a  national  bank  of  the  type  which  was  then  in  fashion,  and  which  was 
expected  to  obviate  the  objections  to  which  the  failure  of  the  old  Bank  had 
given  force. 

In  July,  it  was  stated  that  the  Bank  had  commenced  a  suit  against  Biddle 
for  nearly  $700,000,  for  which  no  vouchers  could  be  found,  including  the 
mysterious  $400,000  item.* 

The  number  of  defalcations  and  embezzlements  which  were  brought  to 
light  at  this  period  was  very  great.  Only  in  two  or  three  insignificant  cases 
were  the  criminals  punished  by  law.  It  came  to  be  regarded  almost  as  a 
demonstrated  fact  that  financial  irregularities,  at  least  in  the  region  of  "high 
finance,"  could  not  be  reached  by  the  criminal  law.f  A  list  of  these  defal- 
cations, which  was  made  up  by  the  newspapers,  began  with  the  suspended 
debt  of  the  Bank  of  the  United  States,  consisting  of$:>o  millions  "lent  to 
politicians,"  and  $1.2  millions  taken  by  its  officers,  for  which  there  were  no 
vouchers.  An  attempt  was  made  to  levy  attachments  on  the  debts  due  by 
Webster,  Biddle,  and  Riddle;  and  also  on  $90,000  which  had  been  put  in 
the  hands  of  Handy,  Lewis,  and  others,  with  the  purpose,  a^-  was  alleged, 
of  improperly  influencing  Gov.  Porter.  December  14th,  the  grand  jury 
made  a  presentment  to  the  Court  of  General  Sessions  of  the  county  of  Phila- 
delphia. "  The  deliberate  opinion  of  the  grand  jury  is  that  certain  officers 
connected  with  the  United  States  Bank  have  been  gu'Uy  of  a  gross  violation 
of  the  laws."  They  ask  for  bills  of  indictment  to  be  sent  up  against  Biddle, 
Jaudon,  and  Andrews,  "for  entering  into  a  conspiracy  to  defraud  the  .stock- 
holders of  the  United  States  Bank  of  the  sum  of  $400,000  in  1836,  and 
endeavoring  to  conceal  the  same  by  a  fraudulent  and  illegal  entry  in  1841." 
They  also  ask  for  a  bill  to  be  sent  them  against  Biddle,  Cowperthwaite, 


*  See  page  228.  .\t  this  time  $300  were  taken  from  the  pockei  of  Nicholas  Biddle  as  he  stood  at  the  post  .office  window. 
One  newspajwr  called  it  '"  a  removal  of  the  deposits,"  and  said  that  the  robber  was  a  ''  financier."  Another  said  that  when 
he  found  his  wallet  was  j^one,  he  exclaimed,  "  I  am  robbed!  "  and  "as  cool  and  as  calm  as  a. summer's  morning  went  to  the 
Bank  and  drew  for  $100  more."  The  tradition  is  that  Biddle  was  extremely  careless  in  his  persoiul  expenditures,  and  kept 
no  private  cash  account. 

t  0  Bankers  ^lagazine.  250. 


:<: 


..t:«i*-ivau-a^M«>-*.'/-  \ 


1  ii 


COURSE  OF  THE  CRISIS;  i  40-41. 


3^1 


Dunlap,  and  others  for  a  conspiracy  to  defraud  the  stockholders  of  the  Bank 
of  the  United  States  of  more  than  $300,000  in  1836,  '37,  '38,  '39,  and  '40. 
Also  for  a  bill  against  Lardner,  Dunlap,  Price,  Lewis,  and  Handy  for 
conspiring  to  cheat  and  defraud  the  stockholders  of  the  United  States  Bank 
of  Pennsylvania  of  about  $130,000  in  1840. 

The  presentment  of  the  grand  jury  was  quashed  on  the  ground  that  the  ac- 
cused should  have  had  a  preliminary  hearing  before  a  committing  magistrate. 
Several  of  the  politicians  who  were  in  debt  to  the  bank  settled.  There  were 
three  notes  for  a  total  amount  of  $100,000  drawn  by  C.  Hickman  orC.  Hick- 
man &  Co.,  ind  indorsed  by  John  M.  Riddle,  on  which  Riddle  was  sued. 
He  dt>li>',.  Uicm  forgeries.  Hickman  was  a  government  director,  who 
was  retained  as  director  by  Biddle's  influence  after  the  charter  expired. 
"Sometime  since  he  found  it  convenient  to  migrate  to  South  America." 
Suits  were  brought  bv  holders  of  post-notes  against  two  clerks  of  the  bank, 
to  whose  01'!  :  thev  w\  payable  and  by  whom  they  were  indorsed.  The 
clerk.s  made  affidavits  that  'these  indorsements  were  mere  clerical  acts  and 
not  designed  t .  create  any  contracts  between  them  and  any  other  person, 
and  that  it  was  so  understood  by  the  community  generally."* 

In  the  sprin  .;  .'  i';o  following  year  another  attempt  to  try  Biddle  and  the 
other  officers  1  r  n;  ^piracy  to  defraud  the  stockholders  was  made.  The 
Recorder  found  proiiable  cause  against  them  and  bound  them  over  lo  the 
General  Sessions  in  $10,000  each.f  Some  oftliem  went  to  jail  and  were 
released  by //izZ't'Ji"  ror/)//i"  proceedings.  The  prosecution  came  to  nothing. 
The  proceedings  brought  the  law  into  contempt,  and  were  used  by  the  loco 
frcos  to  prove  tl'.at  the  law  was  only  for  the  convenience  of  the  rich  and  the 
oppression  of  the  poor. 

The  Supreme  Court  of  the  State  said,  in  1851:  "The  charter  [of  the 
United  States  Bank]  confers  privileges  with  a  prodigality  never  heard  of 
before.  Its  insolvency  in  less  than  five  years  could  hardly  have  occurred 
without  criminal  improvidence,  and  must  have  brought  ruin  on  many 
citizens,  yet  no  measures  were  taken  either  to  protect  the  people  or  to 
punish  the  offending  corporation."! 

The  special  attitude  of  mind  in  which  everything  rel  'tmg  to  banks  was 
approached  at  this  time  constituted  a  social  phenomenon,  and  it  stood  out 
more  glaringly  in  connection  with  the  United  States  B.:iik  than  anywhere 
else.  The  bankers  had  methods  of  doing  things  which  were  customary  and 
conventional,  but  which  were  contrary  both  to  ordinary  morality  and  to  law 
as  applied  to  similar  matters  outside  of  banks.  The  courts  recognized  and 
gave  validity  to  these  conventions  and  customs.  The  l';inks  also  disre- 
garded law  so  habitually  that  it  became  a  commonplace  that  law  could  not 
bind  them.  "There  is  no  more  desperate  undertaking  th;in  that  of  control- 
ling the  bank  influence,  and  it  is  irredeemably  and  vitally  dishonest.  *  *  * 
This  bill  [to  extend  the  District  banks  for  two  years]  is  bristled  with  three 


'  Gouge  :  Journal  of  Biinking,  197,  214. 


t  Vaux,  Recorder's  Decisions,  12. 


;  S  Harris,  460. 


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A  HISTORY  OF  BANKING. 


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conditions,  of  which  they  complain;  but  of  no  avail.  They  will  accept  and 
break  them  with  equal  indifference."*  "The  most  stringent  laws  might  be 
passed  for  the  government  of  banks,  yet  experience  has  shown  that  as  long 
as  they  had  life  they  would  set  all  laws  at  defiance  as  soon  as  the  Assembly 
adjourned. "f 

We  search  almost  in  vain  through  the  law  reports  for  any  decisions  on 
the  rights  or  authority  of  the  State  over  banks  or  the  duties  of  banks  to  the 
State.  It  may  be  said  that  no  attempts  were  made  to  test  or  enforce  the 
rights  of  the  State  against  banks,  and  that,  as  a  matter  of  practice,  it  had 
none.  The  banks  were  almost  irresponsible.  Such  decisions  as  bear  at  all 
on  the  authority  of  the  State  over  banks  proceed  from  the  attempts  of  the 
banks  to  resist  the  exercise  of  any  authority  whatever.  For  instance:  the 
banks  which  had  charters  resisted  the  appointment  of  Bank  Commissioners,! 
which  was  an  exercise  of  visitorial  power,  and  was  the  lever  by  which  the 
States,  after  1840,  began  to  reduce  the  banks  to  order.  They  would  never 
have  accomplished  this,  however,  if  it  had  not  been  that  the  banks  them- 
selves were  weakened  and  humiliated  by  the  consequences  of  their  own 
misbehavior,  and,  being  liable  to  forfeiture,  were  forced  to  come  to  terms 
durmg  the  liquidation  of  that  period.  The  S.ates  were  reluctant  and  timid, 
even  about  taxing  banks,  when  the  charter  was  silent  on  the  subject, 
although  the  Supreme  Court  of  Pennsylvan.a  decided,  as  soon  as  the  case 
was  presented,  that  "the  taxing  power  is  an  incident  of  the  State's  sover- 
eignty, and  the  State  does  not  lose  it  by  a  charter  which  says  nothing  on  the 
subject.  "§ 

Three  assignments  were  made  for  the  United  States  Bank  during  the 
year  iS^j'.  The  first  trust  was  created  in  May  for  the  post-notes  in  the 
hands  of  the  city  banks,  $5.4  millions  in  amount.  These  were  provided  for 
by  securities  to  the  value  of  $7.7  n.illions.  The  liabilities  in  Europe,  $15.8 
millions,  were  to  be  provided  for  by  collateral  of  the  estimated  value  of  $24.7 
millions.  The  second  trust  was  for  the  circulation,  deposits,  and  other  bank 
balances,  amounting  to  $>4  millions,  for  which  assets  were  assigned 
amounting  to  $12.9  millions.  The  remaining  liabilities  were  %2.2  millions 
and  the  remaining  securities,  $17.7  millions.!  The  third  trust  was  created 
September  4th,  the  city  of  Philadelphia,  as  trustee  of  the  Girard  fund,  having 
sued  the  Bank  for  $1.3  millions  which  had  been  loaned  to  the  Bank  out  of 
that  fund.*!  The  United  States,  about  the  same  time,  got  judgment  against 
the  Bank  on  the  damages  for  the  French  bill,  and  applied  to  the  United 
States  Circuit  Court  of  Pennsylvania  for  a  bill  in  equity  to  have  the  trust  set 
aside  and  a  receiver  appointed.**  Some  stocks,  to  the  value  of  about  $1,000, 
were  reserved  out  of  the  assignments,  in  order  to  keep  up  the  charter. ft 

In  September,  Gouge  said  that  the  Bank  of  the  United  States  must  be 

•  9  Adams's  Diary,  S46.  M.iy,  1838.  t  Ford's  Illinois,  21^. 

X  Commonwealth  Tcrsi/j  F.irmers  and  Mechanics'  Bank,  21  Pickering.  542. 

IBankofPenn.  f^rJiis  Commonwealth,  19  Penn.,  144.  \  60  Niles,  201.  ^  01  Niles.  >a,  70.  *♦  See  oage  215. 

tt  8  Robinson,  Lousiana  Reports,  2S7  ;  where  the  text  of  the  three  assigninotus  is  given. 


•!>  .  :S" 


be 


2IS. 


COURSE  OF  THE  CRISIS;  1840-41. 


353 


reckoned  as  definitively  broken.  "It  may  be  revived  some  years  hence  as 
a  paper  money  manufactory."  "The  firm  belief  is  that  the  Bank  for  many 
years  had  not  $35,000  capital."*  Di-'ing  the  year  there  were  great  fluctu- 
ations in  the  notes  of  the  Bank,  which  had  become  an  object  of  very  active 
speculation.  They  were  quoted  at  37  to  40  in  Philadelphia  currency,  which 
was  itself  five  percent,  below  par  of  specie.  All  those  who  had  debts  to 
pay  to  the  Bank  wanted  to  buy  the  notes  as  cheaply  as  possible,  which 
gave  a  chance  for  a  counter  speculation. 

As  the  Bank  had  opened  an  office  in  London  without  a  British  charter,  it 
was  maintained  that  the  English  stockholders  were  personally  liable  for  any 
debts  of  the  agency  to  British  subjects.! 

In  November  money  was  from  seven  per  cent,  to  nine  per  cent. ;  stocks 

falling;  bank  capital  locked  up  in  the  post-notes  of  the  Bank  of  the  United 

States.     The  Girard  Bank,  to  save  its  charter,  paid  a  dividend  of  one  cent 

per  share.     "The  truth  is,  we  are  in  a  sad  way  in  Pennsylvania  with  regard 

0  money  and  Bank  matters.  "| 

The  Towanda  Bank,  in  the  northern  part  of  Pennsylvania,  several  times 
m<.de  arrangements  with  agents  in  Philadelphia  to  redeem  its  notes.  When 
they  had  thus  gained  currency,  the  agent  ceased  to  redeem  and  the  notes 
fell  'o  a  heavy  discount.  It  accepted  the  relief  system  and  issued  §100,000 
more  ihan  its  share.  The  State  Treasurer  refused  to  receive  any  of  its  bills 
in  payment  of  public  dues.  November  19th,  its  agent  in  Philadelphia 
ceased  to  redeem.  The  "Public  Ledger"  said:  "Hundreds  of  poor  laborers 
were  to  be  seen  running  in  every  direction  with  their  hands  full  of  the  trash 
and  not  able  to  induce  a  broker  to  give  a  sixpence  in  the  dollar  for  them. 
We  passed  in  the  market  a  woman  who  makes  her  living  by  selling  butter, 
eggs  and  vegetables,  who  had  almost  all  she  was  worth,  about  $17,  in 
Towanda  bank  notes.  When  apprized  that  it  was  worthless,  she  sank 
down  in  agony  upon  her  stool  and  wept  like  a  child.  This  is  but  one  of  a 
hundred  similar  cases,  for  the  market  has  been  full  of  the  trash  for  a  week 
or  more."§ 

In  his  message,  December,  1841,  Tyler  said  that  he  had  a  plan  of  a  "Fiscal 
Agent"  ready,  which  would  be  sent  in  by  the  Secretary  of  the  Treasury  if 
Congress  asked  for  it.  They  did  so.  According  to  this  scheme  no  capital 
Nvas  to  l>o  subscribed  by  individuals;  governed  by  a  Board  of  Exchequer  at 
Washington,  appointed  by  the  President,  with  the  consent  of  the  Senate, 
the  Secretary  ot  the  Treasury  nnd  Lhe  Treasurer  of  the  United  States  being 
ex-officio  members  of  the  Board ;  to  have  two  branches  in  each  State  and 
more  if  Congress  so  directs;  the  Board  is  to  nominate  and  the  Secretary  of 
the  Treasury  is  to  appoint  officers  of  the  branches  and  ti'!  Board  is  to  fix 
their  compensation  and  establish  by-laws  for  their  government;  to  issue 
notes  from  $s  to  $1,000:  to  pay  the  public  creditors  with  its  own  notes  or 


'  Gouge ;  Journil  of  Banking,  87.   180. 
21 


t-  Ibid.  210 
^  Gou^e  ;  Journal  ot'  Banking.  168, 


}  Bii:kneirs  Reporter  In  61  Niles,  176. 


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//  HISTORY  OF  BANKING. 


specie  or  the  notes  of  specie  paying  banks;  to  receive  deposits  of  specie  to 
an  amount  not  exceeding  $15  millions  and  give  certificates  of  deposit 
redeemable  only  where  issued,  with  interest  at  one-half  of  one  per  cent. ;  to 
make  no  local  discount;  one  branch  may  sell  drafts  on  another  at  a  premium 
never  exceeding  the  cost  of  transporting  specie  and  never  exceeding  two 
per  cent. ;  such  drafts  on  places  distant  500  miles  or  less  to  be  for  no  longer 
time  than  30  days  from  date,  on  places  distant  over  soo  miles,  not  longer 
than  30  days  from  sight;  drafts  to  be  discounted  at  not  over  six  percent.; 
no  branch  is  to  deal  in  bills  of  exchange  or  accept  deposits  in  any  State  if  the 
State  forbids  it;  to  make  settlements  with  neighboring  banks  weekly;  all 
dues  of  the  United  States  to  be  paid  in  specie,  notes  of  this  bank  or  notes  of 
specie  paying  banks  immediately  convertible  where  received ;  the  amount  of 
specie  on  hand  at  each  branch  to  be  always  equal  to  one-third  of  the  amount 
of  its  issues;  the  note  issue  to  be  $15  millions;  the  resources  of  the  bank  to 
consist  of  government  bonds,  of  which  the  head  bank  at  Washington  may 
issue  not  more  than  $5  millions  at  five  per  cent. ;  a  contingent  fund  of 
$2  millions  to  be  formed  from  the  profits,  after  which  the  profits  to  go  to  the 
Treasury;  the  accounts  of  the  government  and  of  individuals  to  be  kept  in 
separate  books;  its  own  officers  to  have  no  dealings  with  it  on  their  private 
account;  to  report  to  Congress  at  the  beginning  of  each  session;  defalcations 
by  the  officers  are  felonies  to  be  punished  by  fine  and  imprisonment;  it  may 
appoint  State  banks  as  its  agents;  suits  to  be  in  the  name  of  the  United  States; 
it  is  to  be  a  corporation  with  five  commissioners  constituting  a  Board,  two 
being  ex-ofificio,  as  above  stated,  the  other  three  holding  office  for  six  years 
with  a  vacancy  every  two  years  and  irremovable  except  "for  physical 
inability,  incompetency,  or  neglect  or  violation  of  duties;"  the  officers  of  the 
branches  to  be  irremovable  without  limit  of  time,  "except  for  physical 
inability  or  incompetency,  or  neglect  or  violation  of  duty;"  the  bank  may  be 
dissolved  by  the  concurrent  action  of  the  President,  the  House,  and  the 
Senate.  This  scheme  was  called  the  "Exchequer."  It  was  clearly  a  long 
advance  towards  a  mere  Issue  Department  of  the  Treasury.  The  whigs  had 
said  of  the  proposed  banks  of  1841  that  they  offered  no  inducements  to 
capitalists,  which  would  cause  the  capital  to  be  subscribed.  This  one  called 
for  no  subscriptions,  but,  for  that  reason,  it  had  no  interest  for  those  who 
wanted  a  bank  as  a  business  enterprise  and  chancc  *"  profitable  investment. 
It  therefore  never  received  serious  attention,  although  it  was  made  a  text 
for  long  speeches  in  the  party  warfare. 

Although  the  whigs  had  fought  fiercely  in  1841  for  almost  any  kind  of  a 
national  bank,  yet  in  1842  they  nearly  all  agreed  with  Webster  that  a  Bank 
of  the  United  States,  founded  on  a  private  subscription,  was  an  "obsolete 
idea."*  Perhaps  the  "unkindest  cut  of  all  "  was  that  the  Whig  Almanac  for 
1843  called  "Nick  Biddle  a  rascal  "  and  spoke  of  his  Bank  as  one  which  was 
"corruptly  managed." 

*  I  Webster's  Works,  1 35. 


COURSE  OF  THE  CRISIS;  1840-41. 


5SS 


The  President  reiterated  the  recommendation  of  the  Exchequer  in  his 
message  of  1842;  but  it  was  defeated  in  the  House,  January  27,  1843.  by  a 
vote  of  193  to  18.  It  is  remarkable  how  completely  dead  the  whole  subject 
of  a  national  bank  had  then  fallen. 

In  January,  1842,  it  was  said  that  the  Pennsylvania  relief  notes  had  pro- 
duced a  depreciation  of  the  whole  circulation,  and  that  it  would  have  been 
greater  but  that  it  had  not  been  found  possible  to  issue  as  much  as  the 
measure  contemplated.* 

The  Bank  of  the  Northern  Liberties  refused  the  notes  of  the  Girard  Bank, 
January  27,  1842.  This  produced  a  run  on  the  latter  to  which  it  speedily 
succumbed.  The  Bank  of  Pennsylvania  was  the  fiscal  agent  of  the  State. 
The  Treasurer  had  accumulated  in  it,  in  anticipation  of  the  payment  of 
interest  to  be  made  on  the  State  debt,  February  ist,  the  sum  of  $788,000; 
chiefly  in  checks  and  notes  on  the  Girard.  The  Pennsylvania  thus  became 
possessed  of  so  many  of  the  latter,  that  it  paid  them  out,  expecting  to  pay 
the  interest  with  its  own.  It  was  subjected  to  a  run  on  the  27th.  In  three 
days  it  paid  $406,086  of  its  deposits  and  $60,692  of  its  notes.  It  then  posted 
a  notice  that  an  injunction  was  expected  upon  the  application  of  the 
Governor.  Such  an  injunction  was  issued.  Four  other  Philadelphia  banks 
failed  at  this  time. 

These  events  produced  a  panic.  No  one  knew  what  money  was.  Some 
paid  their  debts  with  their  money  in  haste  before  it  should  be  good  for 
nothing.  Those  who  were  not  in  debt  lent  it  to  their  friends.  There  was 
a  run,  not  for  specie,  "for  none  was  visible,  but  what  seems  ludicrous,  a 
run  to  exchangeonebit  of  paper  for  another  bit  of  paper,  "f 

The  "Commercial  List"  of  Philadelphia  could  not  quote  bank  notes  and 
specie  and  exchange  after  the  failure  of  the  Pennsylvania  and  Girard,  on 
account  of  the  confusion.  Specie  was  at  ten  per  cent,  premium,  exchange 
on  New  York  seven  and  a-half.  The  New  York  "Price  Current"  of  the 
same  day  showed  no  material  variation  in  that  market  from  the  previous 
rates,  except  for  Pennsylvania,  West  Jersey,  and  Ohio  notes.  J 

The  interest  on  the  Pennsylvania  debt  was  paid  by  the  Bank  of  Pennsyl- 
vania with  a  nominal  advance  of  four  and  a-half  per  cent,  but  in  notes  which 
wvre  eight  per  cent,  below  specie. 

A  Committee  of  Investigation  of  the  stockholders  of  the  Girard  Bank 
found  that  the  assets,  which  amounted  nominally  to  $5.6  millions,  were 
worth  $756,771. 

Upon  the  failure  of  these  banks,  the  Legislature  once  more  took  the 
matter  of  banks  and  resumption  in  hand  and  passed  an  act,  March  12th. 
ordering  the  banks  to  resume  immediately,  with  a  proviso  that  the  relief 
notes  should  be  received  by  the  State  but  not  by  the  banks.  The  relief 
banks  fell  back  on  the  bargain  in  the  relief  bill,  and  the  others  said  that  they 
had  no  official  notice  of  the  passage  of  the  act.    The  relief  notes  fell  at  once, 


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'  Gouge;  Journal  of  Banking,  211. 


t  Gouge;  Journal  of  Banking,  247. 


4  Ibid,  248. 


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/?  HISTORY  OF  BANKING. 


some  fifty  per  cent.,  some  twenty-five  per  cent.  Nine  Philadelphia  banks 
which  had  not  failed  agreed  to  resume  March  i8th.  The  exchange  turned 
in  favor  of  Philadelphia  and  $500,000  in  specie  was  taken  thither  from  New 
York, 

The  opinion  was  expressed  that  the  real  object  of  the  law  for  the 
immediate  resumption  of  specie  payments  was  to  compel  the  banks  which 
had  kept  out  of  the  relief  system  to  come  into  it.* 

All  notes  under  five  dollars,  except  relief  notes,  were  made  unlawful, 
June  24th.  An  appraisement  law,  with  no  sale  unless  two-thirds  of  the 
appraisement  was  obtained,  was  passed  July  i6th.  This  was  the  stage  of 
abasement  to  which  the  great  State  of  Pennsylvania  had  been  brought  by 
five  years  of  the  Biddle  policy;  a  flood  of  State  paper  money  and  a  stay  law. 
The  one  motive  of  Pennsylvania  for  all  the  bad  public  action  of  this  period 
was  the  faith  in  her  "internal  improvements,"  and  the  desire  to  complete 
them.  This  motive  entered  into  the  rivalry  with  New  York.  The 
worst  consequence  of  the  conviction  that  there  was  a  public  policy  which 
would  lead  ultimately  to  some  results  so  grand  that  any  steps  which  would 
further  it  must  be  adopted,  no  matter  how  bad  they  were,  was  the  ever 
ramifying  an(.  extending  political  and  financial  corruption.  "Our  internal 
improvemenl:  system,"  said  Gouge,  "seems  to  be  almost  as  corrupt  and 
corrupting  ;is  our  banking  system.  The  jobbing  and  the  favoritism  it 
gives  rise  to,  and  the  manner  in  which  it  increases  executive  influence, 
makes  some  Pennsylvanians  almost  regret  that  railroads  and  canals  ever 
were  invented."! 

From  1826  to  1857  Pennsylvania  spent  on  the  main  line  of  her  canal 
$18.6  millions.  In  1857  she  sold  the  whole  for  $7. 5  millions.  On  branch 
canals  and  unfinished  public  works,  she  spent  before  1844,  $14  millions. 
Additional  expenditures  on  the  same  before  1858  were  $2.4  millions.  These 
were  all  sold  in  the  last-named  year  for  $12.9  millions.  The  loss  on  the 
whole  was  $24  millions.  The  reason  given  for  selling  was,  however,  that 
the  works  caused  political  corruption.]: 

The  statement  is  made  that,  in  1843,  Pennsylvania  sold  out  the  bank 
stock  owned  by  the  State,  the  par  value  of  which  was  $2,533,676,  for 
$389,056.  § 

In  answer  to  a  call  of  the  Senate  the  Secretary  of  the  Treasury  attempted, 
in  a  report  of  February  12,  1 841,  to  estimate  the  loss  which  the  government 
and  the  people  had  incurred  from  banks.  The  Treasury  had  lost  on  bank 
notes,  received  before  1837,  $5.5  millions,  and  by  depositories,  before  the 
same  date,  $900,000.  On  bank  notes  taken  since  1837,  the  loss  was  $40,000. 
This  was  a  justification  of  the  policy  pursued  in  1837,  and  which  was  so 
bitterly  denounced  at  the  time,  by  which  the  federal  government  cut  loose 
from  the  banks  and  created  its  own  currency  of  treasury  drafts.     The  num- 


*  Gouife  ;  Journal  of  Banking,  311. 


+  Journal  of  Banking,  375. 
J  Martin;  Boston  Stock  Market,  15. 


X  Penn.  Bureau  ot  Statistics,  1873-4. 


I- 


iirittl>iiSiiii.tfiM«MiiM»Ai^Mi«>M>>MfeL- 


COURSE  OF  THE  CRISIS:  1840-41. 


,'^7 


ber  of  banks  which  had  failed  since  1789,  was  389;  the  estimated  loss  on 
their  circulation  was  $18.  i  millions,  and  on  their  deposits  and  bank  balances 
as  much  more.  The  net  loss  by  suspension  of  banks  which  had  resumed, 
or  were  expected  to  resume  at  the  time  of  writing,  attributable  to  the  depre- 
ciation during  suspension,  was  put  at  Sgs  millions,  of  which  all  but  $22.  s 
millions  belonged  to  the  period  1837  to  January,  1841.  The  loss  by  coun- 
terfeits since  1789  was  set  at  $4.4  millions,  in  this  report  the  Bank  of  the 
United  States  was  not  counted  as  definitely  bankrupt.  Of  the  losses  during 
the  following  three  years,  in  which  the  banks  underwent  a  sweeping 
destruction,  we  have  no  estimate. 

Gouge*  estimated  the  losses  of  Philadelphians  in  two  years  before  July, 
1842,  at  $so  millions.  "Of  the  losses  sustained  by  depreciation  of  bank 
notes  and  bank  deposits  we  have  seen  no  estimate.  The  aggregate  must  be 
enormous,  but  it  is  divided  among  a  great  number,  and  as  part  of  the  loss 
is  suffered  on  one  day  and  part  on  another,  the  people  are  able  to  bear  up 
under  it.     A  direct  tax  of  half  the  amount  would  have  caused  a  rebellion." 

One  writer  of  this  period  disputed  the  current  notions  of  the  great  advan- 
tage from  banks;  maintaining  "that banks  as  they  have  been  managed  have 
been  among  the  retarding,  and  are  not  to  be  reckoned  among  the  accelerat- 
ing, causes  of  the  accumulated  wealth  of  the  country.  Reasonable  proofs 
are  found  in  treatises  and  essays  of  our  own  writers  that  the  currency,  as  it 
has  been  managed  by  the  banks  the  last  thirty  years,  has  cost  the  country 
more  money  than  the  whole  peace  expenditure  of  the  government  would 
probably  have  amounted  to,  under  a  metallic  currency,  or  a  mixed  currency 
so  managed  as  to  be  subject  to  no  greater  fluctuations  than  are  incident  to  a 
metallic  currency."! 

Gallatin  was  of  very  much  the  same  opinion:  "  It  may  with  truth  be 
affirmed  that  the  present  situation  of  the  currency  of  the  United  States  is 
worse  than  that  of  any  other  country.  *  *  *  No  hesitation  is  felt  in 
saying  that  whatever  may  be  the  presumed  advantages  of  a  moderate  use  of 
a  paper  currency  convertible  into  specie  on  demand,  to  have  no  issue  of 
paper  would  be  far  preferable  to  the  present  state  of  things.  "| 

Perhaps  the  best  writer  who  undertook  to  controvert  the  Biddle  theory 
of  banking  was  Samuel  Cox.§  He  disputed  Biddle's  assertion  that  'the 
banks  of  this  country  have  been  the  great  instruments  of  its  improvement." 
He  referred  to  the  physical,  sc  ial,  and  political  causes,  and  maintained  that 
the  country  would  prosper  by  virtue  of  these,  with  banks  or  without.  No 
one  has  ever  criticised  better  than  he  did  the  notion  that  banks  create 
capital.  He  understood  the  need  of  a  new  country  for  capital  and  the 
phenomena  which  it  produced,  which  were  generally  otherwise  explained. 

♦  Journal  of  Banking,  276. 

+  Lee  :  Letters  to  the  Cotton  Manufacturers,  quoted  in  a  Macgregor  ;  Progress  of  America,  1117. 

X  3  Gallatin's  Writings,  384  (1841). 

§  Banlting  and  Currency,  1838. 


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CHAPTER  XV. 

Thi-  Liquidation;  1842  to  1843. 

ASSACHUSETTS. — The  full  force  of  the  revulsion  of  the  period 
whose  history  we  have  recounted  in  the  last  preceding  chap- 
ters appears  perhaps  more  distinctly  than  anywhere  else  in  the 
following  statistical  statement  about  the  banks  of  Massachu- 
i'^^^Si    setts,  which  shows  it  in  a  comprehensive   and  yet   concise 


form.  The  New  England  States  escaped  comparatively  easily  from  the 
troubles  of  the  period,  yet  the  Massachusetts  banks,  which  were  the  leading 
ones  of  the  section,  had  their  share  in  it,  and  these  figures  show  that  they 
went  through  the  full  measure  of  the  liquidation.  These  figures  are  also 
the  fairest  representation  we  can  find  of  the  fluctuations  and  vicissitudes  of 
the  banking  system  of  the  country,  where  it  was  not  dominated  by  the  big 
Bank  of  the  State  experiments  or  by  the  mania  for  "internal  improve- 
ments." 

The  ratio  of  specie  to  the  bills  in  circulation  and  to  the  sum  of  the  circu- 
lation and  deposits  in  all  the  banks  in  Massachusetts  for  the  years  given:* 


Date. 

No.  of 
Uanks. 

Ratio  ot 

Specie  to 

Circulation. 

Ratio 

of  Specie  to 

Circulation 

and  Deposits. 

Date. 

No.  01 
tlanks. 

Ratio  or 
Specie  to 
Circulation. 

Ratio 

of  Specie  to 

Circulation 

and  Deposits. 

1820 

28 

I  to  2.04 

1   to  4.  i2 

1832 

83 

7.89 

11.15 

1821 

28 

0.98 

3.10 

1833 

102 

8.55 

12.  S7 

1822 

33 

3-3' 

6.72 

1834 

103 

6.39 

10.82 

1823 

34 

3.02 

6.04 

183=; 

105 

8.29 

13.06 

1824 

31 

1.98 

4.68 

1836 

117 

7.48 

13-52 

182s 

4« 

5-76 

8.29 

1837 

129 

6.76 

12.34 

1826 

55 

4.83 

6.82 

1838 

120 

3.92 

6.90 

1827 

60 

4-54 

6.58 

1839 

116 

4.28 

7-94 

1828 

61 

6.36 

8.34 

1840 

115 

3.06 

5'0o 

l82q 

66 

4.81 

7.38 

1841 

I  1  I 

3.06 

5.80 

1830 

63 

4.07 

6.90 

1842 

105 

3.00 

5-74 

1831 

70 

8.41 

13.19 

1843 

104 

1.41 

2.72 

*  Treasury  Report,  August  lo,    1846. 


fi 


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THH  UQUinATION;  1842  TO  1841. 


310 


According  to  a  t.iMo  in  the  report  of  the  B;ink  Commissioners  of  Massa- 
chusetts, 1S41,  tlie  baiikinfJt  capital  of  that  Stale  varied  as  follows:  in  iSoj?, 
$2.2  millions;  from  iSo-j  to  1S16.  it  continually  increased  to  $11.4  millions; 


from 


1-S16  to  1X17  It  was  reduced  to  §9.2  millions;  from  1S17  to  iS2oit 
continually  increased  to  $10.6  millions;  from  1820  to  1821  it  was  reduced  to 
$i).S  millions;  from  182 1  to  1820  it  continually  increased  to  $20.4  millioiu; 
from  182910  1830  it  was  reduced  to  $19.2  millions;  from  1830  to  18 ■57  it 
continually  increased  to  $38.2  millions.  We  may  add  that  it  was  then 
reduced  to  $10  millions  in  1844. 

By  a  law  of  1840,  no  bank  was  allowed  to  pay  out  any  but  its  own  notes. 
The  president  of  the  Suffolk  Bank  informed  a  country  bank  president,  who 
wanted  help,  in  1841,  that  the  bank  was  making  no  discounts.  "Our 
discount  sheet  is  entirely  closed,  and  we  do  not  even  look  at  the  appli- 
cations." 

New  York. — After  a  great  political  struggle,  in  1842,  the  public  works  of 
New  York  were  suspended  and  taxes  were  imposed  to  sustain  the  ciedit  of 
the  State. 

A  question  arose  whether  the  payments  out  of  the  safety  fund  were  to  be 
made  to  redeem  the  circulation  of  the  banks  in  the  order  of  their  failure,  and 
an  injunction  was  obtained  against  the  Comptroller  to  force  him  to  take  thnt 
course.  The  movement  was  in  the  interest  of  other  creditors  of  an  insolvent 
bank  besides  the  note-holders.  Conseciuently,  April  12,  1842,  the  safety 
fund  system  was  further  modified,  so  that  any  part  of,  or  all,  the  money  in 
the  bank  fund  could  be  applied  at  once  to  the  payment  of  the  notes,  the 
banks  being  taken  in  the  order  in  which  the  injunctions  were  granted.  This 
applied  the  whole  safety  fund  to  the  redemption  of  the  note  issues.  The 
banks  were  also  allowed,  within  six  months,  to  commute  for  the  payment 
of  the  three  per  cent,  which  they  would  have  to  pay  to  the  safety  fund 
within  the  next  few  years,  paying  with  the  notes  of  any  insolvent  bank, 
and  receiving  interest  at  seven  per  cent,  on  the  sum  paid  until  the  time 
when  it  would  become  due.  A  large  part  of  the  notes  which  were  a  charge 
on  the  safety  fund  were  at  this  time  held  in  masses  by  banks  and  brokers 
who  had  taken  them  as  collateral  for  loans.  As  the  redemption  of  the  circu- 
lation of  the  banks  was  to  be  taken  up  in  the  order  of  the  injunctions,  these 
masses  of  notes  would  so  absorb  the  fund  that  the  holders  of  what  was 
called  the  legitimate  circulation  of  the  banks  which  failed  later  would  be 
forced  to  wait  a  long  time.  At  the  same  time  the  banks  which  commuted 
could  pay  in  the  notes  of  any  insolvent  bank,  even  of  one  which  failed  after 
the  law  was  passed;  but  those  notes,  the  redemption  of  which  was  delayed, 
depreciated.  Hence  the  Comptroller,  in  his  report  of  1844,  said  that  the  law 
of  1842  had  benefited  the  banks  and  brokers,  but  that  it  had  not  "secured 
that  relief  to  the  great  mass  of  the  bill-holders  which  was  anticipated,  and 
which  is  promised  in  the  title  of  the  act."  The  banks  paid  in,  in  1842,  in 
advance,  in  the  notes  of  insolvent  banks,  $477,609. 

No  bank  in  New  York  City  would  discount  any  note  or  bill  in  October, 


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A  HIST'^RY  OF  BANKING. 


1842,   which   was   payable  in  the   interior  of  any  southern   or  western 
State.* 

The  exchanges  in  May,  1842,  at  New  York,  were  as  follows:  England, 
eight  and  one-quarter  premium ;  Boston,  Philadelphia,  and  Baltimore,  par  or 
one-quarter  discount ;  Virginia,  five  and  one-quarter;  Charleston,  one  and 
one-quarter;  Augusta,  two;  Savannah,  two;  Mobile,  twenty-five;  New 
Orleans,  six;  St.  Louis,  five;  Cincinnati,  eight;  Nashville,  fifteen;  treasury 
notes,  one-quarter; — discount. f 

The  Governor  in  his  message,  January,  1843,  said  that  the  bonds  held 
for  the  State  circulation  were  worth  at  par  $4.6  millions;  that  their  market 
value  was  $1.6  millions;  all  the  mortgages  and  stocks  together  were  worth 
less  than  the  circulation  by  $0.5  million.  A  year  later  his  statement  showed 
that  the  securities  were  a  little  in  excess  of  the  circulation.  As  to  the  safety 
fund,  it  was  in  arrears  $579,353,  for  the  notes  of  the  insolvent  safety  fund 
banks. 

In  1843,  the  office  of  Bank  Commissioner  was  abolished,  and  the  duties 
were  transferred  to  the  Comptroller.  Every  chartered  bank  was  rer^uired, 
on  July  1,  1843,  to  deliver  all  its  bank-note  plates  to  that  officer,  and  to  make 
a  return  to  him  of  all  bank  notes  created  by  it  then  in  existence.  All  notes 
issued  before  that  date  were  to  be  countersigned  by  the  Comptroller  before 
July  I,  1844,  or  to  be  redeemed  and  destroyed  in  his  presence.  After  that 
he  was  to  cause  to  be  printed,  countersigned,  and  registered  such  notes  as 
each  bank  might  require,  being  within  its  lawful  limit.  Every  bank  in  the 
State  wys  to  make  quarterly  reports  to  him,  and  he  was  to  appoint  an 
examiner  for  any  bank  whenever  he  thought  there  was  reason  to  do  so. 
The  Comptroller  remonstrated  against  this  last  provision. 

The  general  banking  law  was  so  amended  that  only  bonds  of  the  State 
of  New  York  could  be  deposited  as  security  for  circulation.  The  terms 
were  so  stringent  that  bonds  of  the  United  States  were  excluded. 

Ninety-three  banks  were  incorporated  under  the  general  banking  law 
before  1844.  Of  these  eight  failed  to  organize,  twenty-six  were  closed  by 
the  Comptroller,  who  redeemed  of  their  circulation  $1,1^3,984,  at  a  cost  of 
$881,070,  leaving  $27,974  outstanding.  The  stocks  on  deposit,  January  i, 
1844,  at  the  average  value  of  the  preceding  year,  Just  about  equaled  the 
circulation  which  had  been  issued  against  them. 

The  provision  of  law  by  which  country  notes  might  be  redeemed  at  a 
discount  of  one-half  of  one  p'^r  cent,  led  to  a  new  device.  The  Comptroller, 
in  his  report  of  1844,  mentioned  a  case  of  a  bank  organized  under  the 
free  banking  law  in  an  out-of-the-way  place  in  Orange  county.  Its  nominal 
president  lived  in  Connecticut  and  all  its  business  was  done  in  New  York 
City.  The  arrangement  was  devised  in  order  that  it  might  make  one- 
half  of  one  per  cent,  on  such  of  its  notes  as  were  presented  for  redemption 
in  New  York  City. 


«  63  NUes,  ij8. 


t  63  Niles,  J08. 


THE  UQUIDA  TION :  1842  TO  184$. 


361 


All  the  banks  of  Delaware,  six  in  West  Jersey,  and  fifteen  in  tiie  interior 
of  Pennsylvania  resumed  about  March  20,  1842.  The  report  from  Delaware, 
in  1847,  was:  "Delaware  has,  up  to  the  present  time,  never  had  a  broken 
bark."* 

^Pennsylvania. — Philadelphia  paper  was  quoted  at  par  for  the  first  time 
March  26,  1842.!  Of  the  rural  districts  it  v'-'3  said  that  every  county  in 
Pennsylvania  had  its  own  currency. 

In  January,  1843,  "Bicknell's  Reporter"  said  of  the  relief  notes :  "If  any 
one  can  devise  an  immediate  plan  whereby  the  people  can  get  rid  of  about 
$700,000  of  paper  trr.sh,  he  would  be  entitled  to  the  name  of  a  public 
benefactor,  "t  A  month  later,  the  Legislature  orderered  the  Treasurer  to 
cancel  $100,000  per  month,  but  in  April  they  reduced  this  amount  to 
$50,000  and  resolved  to  make  further  attempts  to  sell  the  public  works. 
The  total  amount  of  the  relief  notes  issued  was  $2,186,550;  the  amount 
outstanding  in  June  was  $684, 521. §  The  number  of  counterfeits  was  said  to 
be  equal  to  the  original. 

Mention  is  made  of  these  notes  from  time  to  time,  during  the  following 
years,  in  the  Governor's  messages  and  other  documents.  The  statements 
of  the  amount  outstanding  do  not  show  a  steady  diminution.  In  i860,  the 
Auditor-general  reported  that  there  were  still  $102,336  outstanding,  including 
re-issues.  II 

After  1842  it  becomes  very  difficult  to  follow  the  liquidation  of  the  United 
States  Bank.  It  was  dropped  and  forgotten  as  soon  as  possible.  There 
was  great  dissatisfaction  with  the  proceedings  in  liquidation,  on  the  p;'.rt  of 
the  residuary  interest.  The  Bank  seemed  always  to  get  worsted,  although 
it  could  not  be  said  to  be  wronged.  In  January,  1842,  a  meeting  of  stock- 
holders tried  to  revoke  the  trusts.  A  fuller  meeting,  two  months  later 
reversed  this.  This  meeting  was  "large,  tumultuous,  and  disorderly. "i" 
Mr.  Schwab,  of  New  York,  cited  the  trustees  to  show  cause  why  they 
.should  not  give  security  for  the  faithful  discharge  of  their  trusts.  The 
decision  was  against  him.  Two  acts  were  passed,  one  May  4,  1841,  vetoed 
by  the  Governor,  but  passed  over  the  veto;  the  other.  May  5,  signed  by 
him,  under  either  of  which  the  trustees  might  be  appointed  without  the  re- 
quirement of  bond  or  inventory. 

The  Bank  had  bought  the  Merchants'  Bank  ofNew Orleans  for$i,o76,5oo 
in  order  to  use  it  as  an  agency.  In  April,  1841,  that  bank  was  worth,  at 
the  market,  $906,000.  The  best  bid  which  the  liquidators  could  get  for  it, 
at  which  they  sold  it,  was  $575,000,  from  Edward  Yorke.  In  its  assets  was 
the  sum  of  $334,427  in  specie.  Gouge  wanted  "to  know  the  exact  value  of 
all  the  bank  stock  in  the  country  estimat-d  on  like  principles."  The  secret 
was  that  the  Bank  of  the  United  States  could  not  use  this  specie,  because  the 
charter  required  that  the  Merchants'  Bank  must  always  keep  one-third  of  its 


'  'i  ,il 


I 


•  Treuury  Report,  Aug.  lo,  1848.  t  Gouge  ;  Journal  of  Banking.  ^t2.  t  Qtioted  63  Niln,  309. 

(64  Niles,  133.  I  15  Bank.  Mag.,  663.  ^  8  Robinson,  Louisiana  Reports,  198. 


( 


1 


362 


A  HISTORY  OF  BANKING. 


capital  in  its  vaults  in  specie.*  This  bank  was  pressed  to  sale  because  cred- 
itors enjoyed  especial  facility  for  attachments  in  Louisiana. t 

In  August  the  Bank  of  the  United  States  at  New  York  went  into  voluntary 
liquidation  and  redeemed  all  its  notes.  In  order  to  secure  its  position  as  an 
independent  ally  and  so  avoid  collision  with  the  law  of  New  York,  it  had 
been  established  on  a  relation  of  contract,  and  the  two  gentlemen  in  control 
of  it  had  been  guaranteed  a  yearly  payment  during  the  continuance  of  the 
charter  of  the  Pennsylvania  Bank.  The  latter  now  wished  to  wind  up  the 
New  York  institution  as  if  it  had  been  a  dependency,  but  the  managers  stood 
on  their  contract  for  the  remainder  of  the  term  lor  which  the  charter  was  to 
run.  Arbitrators  gave  them  $101,613;  '''so  $76,948  for  the  unexpired  term 
of  the  lease  of  the  banking  house  which  they  owned. 

In  April,  1842,  the  Legislat'ire  undertook  an  investigation  of  the  proceed- 
ings of  the  United  States  Bank  to  influence  legislation,  in  connection  with 
the  relief  measures  of  1840.  J  George  Handy,  a  director  of  the  Bank  was 
summoned  to  testify,  but  refused  and  was  imprisoned  in  the  Capitol  until  he 
submitted.  He  surrendered  letters  from  the  lobbyists  of  the  Bank,  which 
contained  expressions  about  dealing  in  "lumber."  His  examination  was 
interrupted  by  his  arrest  at  the  order  of  the  Governor,  who  caused  criminal 
proceedings  to  be  instituted  against  him,  although  he  had  turned  State's 
evidence  under  a  pledge  of  immunity.  The  Legislature,  by  joint  resolution, 
March  29th,  ordered  the  Attorney-General  to  enter  a  nolle  in  any  criminal 
proceedings  against  him  for  conspiracy.  According  to  Gouge's  statement 
the  Court  discharged  him,  declaring  that  there  was  no  evidence  which 
would  justify  his  being  held  in  arrest,  and  the  same  of  the  lobbyists 
inculpated  with  him.  The  Governor,  by  his  interference,  had  blocked  the 
legislative  investigation,  which  was  developing  the  evidence,  and  the  Court 
held  that  the  evidence  was  not  sufficient  for  a  criminal  prosecution.  "The 
condition  of  that  State  is  deplorable  in  which  the  people  lose  confidence  in 
their  legislative,  judicial  and  executive  authorities;  yet  such  is  the  present 
condition  of  Pennsylvania,  if  the  sentiments  of  the  inhabitants  of  the  rest  01 
the  State  are  to  be  judged  of  by  those  of  the  citizens  of  Philadelphia.  The 
general  belief  here  seems  to  be  that  the  banking  interest  exercises  an  improper 
influence  in  all  the  departments  of  government.  "§ 

The  United  States  levied  on  assets  of  the  Bank  of  the  United  States,  at 
New  Orleans,  in  1844,  to  try  to  recover  outstanding  claims,  including  the 
French  bill  and  $89,6(36.12,  due  on  the  last  bond  for  the  stock  of  the  United 
States  in  the  Bank.    The  court  sustained  the  assignments,  and  so  cut  off  this 

claim.  II 

There  were  nine  banks  in  Philadelphia  which  did  not  fail  in  1841  or  1842. 
The  Pennsylvania,  Mechanics,  Manufacturers  and  Mechanics,  Penn  Town- 
ship, and  Mc'amensing  (changed  to  Bank  of  Commerce)  recovered.     From 


•  President's  Report,  184}.     See  page  58q. 

I  Gouge ;  Journal  of  Banking,  359. 


t  8  Robinson,  Louisiana  Reports,  187.  X  See  page  319. 

1  8  Robinson,  Louisiana  Reports,  262. 


11 


i«£i^ 


THE  LIQUIDATION;  1842  TO  1845. 


365 


January,  1842,  to  November,  184s,  the  fourteen  banks  reduced  their  capital 
from  $9.3  millions  to  $7.6  millions.  The  circulation  went  down  from 
$2.3  millions  to  $2  millions  in  April,  1842,  and  then  up  to  $4.1  millions  at 
at  the  later  date.  Post-notes  were  reduced  from  $91^,388  to  o.  Specie  and 
specie  funds  increased  from  $1.3  millions  to  $3.9  millions.  This  was  the 
contraction  to  which  Philadelphia  was  forced  before  she  escaped  from  the 
trials  and  humiliations  of  this  period.  How  much  did  she  gain  by  not  taking 
it  as  New  York  did  in  1837?  The  student  of  finance  will  seek  far  for  another 
experiment  so  exact,  comprehensive,  and  conclusive.* 

The  Girard  Bank  was  revived  in  1845,  its  capital  being  reduced  from 
$5  millions  to  $i.2>>  millions. 

The  administration  of  the  trusts  of  the  United  States  Bank  received  little 
public  notice.  The  assignments  were  sustained  in  Court. f  In  Shelby  vs. 
Bacon,  the  trustees  of  the  third  assignment  simply  answered  that  they  were 
performing  the  duties  of  the  trust  and  making  annual  reports  to  the  protho- 
notary. 

The  stockholders  held  a  meeting  June  s,  1848,  in  order  to  try  to  find  out 
the  situation  of  the  various  trusts  and  the  chances  that  there  might  be 
any  surplus  for  the  residuary  interest.  They  obtained  some  information, 
but  were  advised  not  to  publish  it,  and  the  meeting  ended  with  the  appoint- 
ment of  a  committee  to  guard  their  interests. 

A  movement  in  the  stock  occurred  in  December,  185 1,  with  sales  at  from 
one  dollar  to  two  dollars  per  share.  The  cause  of  this  was  not  known. 
Perhaps  it  was  correctly  ascribed  to  action  of  Dutch  stockholders  who 
started  an  attempt  to  pursue  the  assets. |  Any  hopes  which  may  have  been 
entertained  were  overthrown  by  the  decision  that  the  Bank  was  still  liable 
for  the  annual  bonus. § 

In  the  following  year,  on  account  of  this  decision,  the  stockholders  voted 
to  apply  for  an  act  to  wind  up,  and  appointed  five  trustees  in  liquidation,  to 
whom  a  general  assignment  was  made.  The  president  and  directors  had 
been  trying  for  years  to  get  the  foreign  bondholders  to  accept  the  collateral 
and  divide  it  amongst  themselves  in  settlement.  As  the  State  bonds  in- 
creased in  value,  they  became  more  willing  to  do  this,  and  a  distribution 
was  reached  in  18s3.ll 

The  act  to  "close  finally  the  trusts  of  the  late  Bank  of  the  United  States," 
February  3,  iS',^,  provided  that  the  claimants  might  divide  the  assets  of  the 
third  trust  under  the  supervision  of,  and  an  appraisement  by,  auditors.  The 
trustees  were  then  to  be  discharged  and  claims  cut  otf.  In  the  following 
August  the  final  dividend  of  the  third  trust  was  advertised.^ 


t 


'i 


I. 


i 


*  ' 


ii  ' 


fm 


*  S«  page  a86. 

+  United  States  vi.  Bank  of  the  United  States.    8  Robinson's  Louisijna  Reports,  loj. 
Bank,  5  Watts  and  Sargeant,  «J  ;  Shelby  vs.  Bacon,  51  United  Sutes,  ^b. 
1 6  Bank.  Mag.,  498,  501. 
g  ;  Harris,  400. 

I  Answer  of  the  Respondents  in  Batard  fi.  Bayard. 
5  10  Bank.  Mag.,  15). 


Dana  vs.  the  United  States 


M 


1 


.i»B- 


m 


364 


A  HISTORY  OF  BANKING. 


■  I  I 


It  appears  that  the  notes  and  deposits  were  all  paid,  whether  with  inter- 
est or  not  is  uncertain.  Private  inquiries  make  it  seem  probable  that  the 
other  domestic  creditors  got  about  eighty  per  cent.  The  stockholders  got 
nothing.  It  has  been  calculated  that  the  United  States  made  $6  millions 
out  of  the  Bank  of  the  United  States.  This  result  is  reached  by  setting  the 
cost  of  the  government  stock  and  interest  paid  on  the  same,  until  it  was 
converted  into  cash,  against  the  bonus,  the  dividends,  and  the  amount 
received  for  the  stock.* 

Nicholas  Biddle  died  February  27,  1844,  aged  58.  John  Quincy  Adams 
said  of  him  in  1840:  "N.  Biddle  has  a  fair  mind,  a  brilliant  genius,  a  gener- 
ous temper,  an  honest  heart,  waylaid  and  led  astray  by  prosperity,  suffering 
the  penalty  of  scarcely  voluntary  error.  It  is  piteous  to  behold,  "f  The 
men  who  had  flattered  him  and  pushed  him  on  to  folly,  when  he  appeared 
to  be  a  leader  who  could  serve  their  purposes,  turned  upon  him  and  insulted 
him  when  he  failed, t  as  of  course  he  was  bound  to  do;  but  if  he  had  been  a 
man  of  straightforwardness  and  rectitude  of  character,  this  whole  story 
would  have  been  very  different. 

Virginia. — In  April,  1840,  the  teller  of  the  Bank  of  Virginia  absconded, 
being  a  defaulter  for  about  half  a  million.  He  had  begun  by  allowing  over- 
drafts. 

The  Virginia  banks  resolved  to  resume  with  the  Baltimore  banks,  and 
did  resume  about  January  15,  1841,  but  suspended  again  a  little  later.  The 
bad  and  doubtful  debt  to  the  Bank  of  Virginia  was  then  $910,848,  including 
the  teller's  deficiency.! 

February  loth,  the  banks  were  allowed  to  issue  ones  and  twos  under 
the  same  conditions  as  before,  until  January  i,  1842.  The  notes  of  the 
Merchants  and  Mechanics'  Bank  and  of  the  Northwestern  Bank  were  not  to 
be  received  by  the  State  unless  they  would  desist  from  using  post-notes  for 
any  sum  under  $500.  All  penalties,  forfeitures,  and  remedies  against  banks 
were  further  postponed,  March  15th,  until  January  1,  1842.  The  fifteen  per 
cent,  penalty  for  non-redemption  was  suspended  until  June  i,  1842.  At 
the  next  session  there  was  further  postponement  until  April  i,  1842,  and 
finally  the  day  for  the  resumption  of  specie  payments  was  set  at  November 
I,  1842.  The  Governor,  in  his  message  of  184 1,  said  that  he  could  not  urge 
speedy  resumption  because  the  State  owed  the  banks  $350,000  which  it 
could  not  pay.  The  banks  resumed  September  15,  1842.II  It  was  asserted 
by  a  well  informed  writer  that  the  bank  directors  of  Virginia  owed  to  the 
banks  a  sum  equal  to  one-quarter  of  their  total  capital.  The  directors  gen- 
erally owned  only  enough  shares  to  qualify.  IT  In  May  there  were  reports  of 
outrages  in  the  State  to  prevent  sheriff's  sales  and  action  of  the  courts 
against  debtors. 

The  banks  were  allowed  to  issue  small  notes  payable  in  specie  to  the 

•  Report  of  the  Comptroller  of  the  Currency,  1876,  p.  120.        t  10  Adams's  Diary,  ?6i.         f  Ingersoll,  Second  War,  186, 

^  Treasury  Report,  March  },  1841,  and  August  10,  1846. 

1:  Governor's  Message,  1842.  1  Gouge;  Journal  of  Banking,  ^59, 


THE  LIQUIDATION;  1842  TO  1845. 


36s 


amount  of  six  per  cent,  of  their  capital,  until  October  ist,  by  a  law  of  Janu- 
ary 26,  1843.  March  4,  1846.  an  act  was  passed  recitinjf  that  the  Bank  of 
Virginia  had  lost  thirty  per  cent,  of  its  capital,  and  wanted  the  par  of  its 
shares  reduced  to  $70,  which  was  allowed. 

At  the  session  of  Congress,  1839-40,  strenuous  efforts  were  made  to 
obtain  the  passage  of  a  law  to  revive  the  District  of  Columbia  banks,  but 
they  failed. 

North  Carolina. — The  waves  of  financial  elevation  and  depression  in 
this  State  do  not  seem  to  have  coincided  with  those  in  the  other  States.  It 
had  a  great  inflation  in  1829-30  when  the  others  were  at  their  best.*  The 
revulsion  of  1837  to  1843  seems  to  have  passed  over  it  with  little  effect. 

The  Governor  stated,  in  his  message  of  1840,  that  within  four  years  the 
banks  had  paid  to  the  State,  in  dividends  and  taxes,  $2^3,201;  "the  most 
conclusive  proof  of  their  value  to  the  State."  This  was  nearly  half  its  total 
revenue. 

South  Carolina. — After  the  suspension  of  1839,  the  Bank  of  the  State  of 
South  Carolina  and  the  Bank  of  Charleston  alone  sustained  specie  payments. 
The  former  was  called  on  to  redeem  $288,000  of  its  circulation  within  a 
year,  even  the  ones  and  twos  being  returned. f  The  Governor,  in  his  message 
of  1840,  said:  "The  recent  suspension  of  specie  payments  by  most  of  the 
banks  of  our  State  calls  for  some  decisive  action.  The  legal  remedy  which 
the  bill-holder  has  amounts  to  nothing,  in  modern  times  the  refusal  to 
redeem  a  note  is  a  cr  mmon  bank  operation,  and  he  must  be  endowed  with 
more  than  ordinary  fTinness  who  will  make  the  demand,  as  he  is  sure  to 
encounter  the  insulting,  contumacious  spirit  of  a  t  bartered  gentleman." 

The  Legislature  passed  a  resolution,  December  19,  1838,  that  the  Bank 
of  the  State  should  take  the  best  measures  it  could  devise  to  preserve  all  the 
bank  notes  in  the  State  at  par.  In  1840,  the  banks  of  the  State  were  divided 
into  those  which  were  paying  specie  and  those  which  were  not.  The 
Southwestern  Railroad  Bank,  the  Bank  of  Charleston,  the  Planters  and 
Mechanics'  Bank,  and  the  Bank  of  the  State  entered  into  a  voluntary  agreement 
to  try  to  keep  the  country  notes  at  par  of  specie. 

The  banks  of  this  State  resumed  in  June  or  July,  1840. 

It  was  enacted,  December  18,  1840,  that  if  any  bank  should  suspend  the 
payment  of  its  notes  in  specie,  it  should  pay  to  the  State  every  month  five 
per  cent,  of  its  circulation  outstanding  at  the  beginning  of  that  month,  until  it 
should  resume.  Reports  and  examinations  were  also  provided  for,  and 
every  bank  which  had  suspended  was  required  to  give  notice  that  it  accepted 
these  obligations  within  three  months,  or  legal  proceedings  were  to  be  insti- 
tuted to  vacate  its  charter. 

The  income  obtained  from  the  fire  loans,  in  1840,  was  not  equal  to  the 
interest  on  the  fire  bonds  by  more  than  $50,000,  which  the  Bank  of  the  State 
was  obliged  to  advance.  J 


V'     . 


.♦Vi 


'^1] 


H  \ 


\'i 


•  Sm  page  176. 


t  Report  of  the  Bank  of  the  Sute  for  1840. 


X  Its  Report  of  1S40. 


'I 


)66 


A  HISTORY  OF  BANKING. 


I        «: 


From  1814  to  1841  the  Bank  of  the  State  of  South  Carolina  earned  on  an 
average  more  than  seven  per  cent  on  the  capital  placed  by  the  State  in  it. 
In  the  latter  year  the  president,  in  his  report  to  the  Legislature,  said:  "The 
collection  of  the  debts  due  to  the  bank  and  its  branches  is  becoming  every 
day  a  more  important  subject  of  consideration.  The  present  system  is  one 
of  great  inconvenience  and  risk.  The  debtors  are  scattered  over  all  parts  of 
the  State,  and  when  a  note  or  other  cause  of  action  is  sent  to  suit,  it,  in  a 
great  measure,  is  lost  sight  of,  especially  if  the  party  defendant  lives  in  a 
remote  district."  In  1843  the  same  officer  declared  that  the  bank  and  all  its 
branches  had  not  "exhibited  for  many  years  a  more  healthful,  vigorous,  or 
sound  state  of  its  affairs."  He  renewed,  however,  his  expressions  of  anxiety 
about  the  debt  to  the  bank,  and  desired  that  a  power  of  attorney  to  confess 
judgment  might  be  inserted  in  the  bonds  given  to  it  for  loans.  A  proposition 
was  made  in  the  Legislature  in  the  last  mentioned  year  to  wind  up  the  bank, 
or  to  separate  it  from  the  State,  or  to  compel  it  to  call  in  its  notes  under  $s; 
but  it  failed.  The  president  took  up  the  question  whether  a  bank  which  was 
a  loan  office  could  maintain  a  circulation.  If  it  was  nothing  else  but  a  loan 
office,  he  doubted  if  it  could;  but  an  institution  which  was  a  loan  office  and 
a  bank  of  commercial  discount  and  deposit  at  the  same  time  could  do  so. 
The  difficulty  is  to  adjust  the  proportion  between  the  two.  He  felt  warranted 
in  his  opinion  by  the  facts  of  the  suspension  of  1839.  Six  of  the  seven  banks 
in  Charleston  were  purely  commercial;  five  suspended  specie  p.iyments, 
while  the  Bank  of  the  State  paid  in  specie  all  its  notes  which  were  presented, 
and  at  the  same  time  paid  off  more  than  $1  million  of  other  liabilities. 

The  voluntary  attempt  of  the  leading  banks  of  Charleston  to  enforce 
redemption  of  the  country  notes  did  not  succeed.  The  Bank  of  Charleston, 
in  1842,  received  the  notes  of  all  the  banks  in  the  interior  of  the  State  at  par. 
They  had  previously  been  subject  to  a  discount  of  one-half  of  one  per  cent. 
In  six  months  it  sent  home  nearly  $1  million  for  redemption. 

As  soon  as  the  United  States  Bank  and  other  banks  ceased  their  manage- 
ment of  the  foreign  exchanges,  no  further  difficulty  was  experienced  with 
them.  They  regulated  themselves,  the  business  became  normal,  and  we 
hear  no  more  discussion  about  it  than  about  the  supply  of  groceries.  The 
Bank  of  Charleston  reported,  in  1841,  that  it  had  not  had  a  foreign  exchange 
bill  returned  for  a  year,  and  that  the  interior  exchanges  with  South  Carolina, 
Georgia,  and  North  Carolina  had  produced  no  loss  and  no  addition  to  the 
suspended  debt.  In  1843,  the  Bank  of  the  State  of  South  Carolina  and  its 
branches  engaged  in  legitimate  exchange  dealing  on  cotton,  the  result  of 
which  was  to  bring  the  trade  to  steadiness  and  regularity.* 

In  1843,  the  State  sued  out  a  scire  facias  against  the  Bank  of  Charleston 
for  suspending  in  1837,  although  it  did  not  suspend  in  1839.  The  act  of 
1839  about  this  bank,  recognizing  its  present  and  future,  was  held  to  be  a 
waiver  of  forfeiture  which  had  been  really  incurred.     The  Court  also  sug- 


*  Report  of  the  Columbia  Branch,  1844. 


^J 


THE  LIQUIDATION;  1842  TO  184$. 


■?67 


gested  th;it  the  matter  of  suspension  having  been  referred  to  the  Legislature 
by  the  Governor,  in  1817.  and  suspension  having  been  acquiesced  in,  this 
might  perhaps  also  be  regarded  as  a  waiver.* 

The  financial  storm  was  comparatively  mild  in  South  Carolina.  The 
State  had  not  been  much  affected  by  any  of  the  prevailing  manias.  Accord- 
ing to  the  reports  of  the  Bank  of  the  State,  1841  to  1844,  it  was  prosperous 
in  a  modest  way.  Its  profits  are  stated  at  from  $225,000  to  $2so,ooo  per 
annum. 

The  Bank  of  Charleston  issued,  in  1844,  checks  on  New  York  in  denom- 
inations of  five,  ten,  twenty,  and  fifty  dollars,  payable  also  in  Charleston. 
They  were  issued  for  the  convenience  of  the  traveling  public. 

Georgia.— The  capital  of  the  Central  Bank,  in  183s,  was  $2,sqi,9i2.  In 
i8j?7  the  share  of  the  State  in  the  distribution  of  the  federal  surplus  was  put 
in  it.  This  sum  was  kept  separate  and  losses  were  charged  against  the 
former  sum  which  was  thus  reduced,  before  November  2,  1840.  to$qio,  sSq. 
The  State  was  consuming  in  appropriations  and  interest  the  capital  of  the 
bank.  At  the  preceding  session  the  bank  had  been  ordered  to  distribute 
$7 SO, 000  in  loans  amongst  the  counties,  for  "relief."  "These  loans  have 
been  eagerly  sought  by  our  citizens.  By  this  operation  the  profits  of  the 
bank  have  been  increased  by  the  sum  of  $4S.ooo,  and  its  notes  by  the  sum 
of$7'io,ooo."  The  measure,  however,  was  the  death  blow  of  the  bank. 
"The  heavy  amount  of  debts  due  by  the  people,  the  low  price  of  property 
and  commodities,  and  the  poor  reward  of  labor  have  rendered  the  collection 
of  money  due  the  bank  exceedingly  difficult.  Our  receipts  have  been 
greatly  increased  by  the  moneyed  facilities  arising  from  our  distribution  of 
$7SO,ooo,  which  is  now  completed.  This  distribution  has  almost  entirely 
been  loaned  in  small  sums,  and  the  great  amount  of  indebtedness  thus 
transferred  from  creditors,  who  would  not  wait,  to  the  bank,  which  will 
await  the  annual  return  of  the  industry  of  the  planter,  has  operated  as  a 
relief  to  thousands  of  our  most  meritorious  citizens.  *  *  *  Time  has 
proved  the  unsoundness  of  a  large  amount  of  claims  which  have  been  due 
to  the  State  for  thirty  years  and  upwards.  Experience  is  daily  developing 
difficulties  in  collecting  notes  heretofore  regarded  as  secured  in  the  ampksl 
manner. "t  A  committee  of  the  House  on  this  report  was  not  at  all  satisfied 
with  it.  They  insisted  that  the  heavy  exchange  against  the  State  was  duo 
to  the  depreciation  of  its  currency,  and  was  no  reason  for  not  putting  the 
funds  in  New  York  to  pay  the  debt  there,  since  the  creditor  had  nothing  to 
do  with  the  internal  troubles  of  the  State.  "Whenever  it  can  be  shown  to 
be  honest  and  sound  policy  to  levy  money  out  of  one  citizen's  pocket  to 
loan  to  another,  certainly  not  more  and  probably  much  less  meritorious, 
then  ought  the  policy  of  the  Central  Bank  to  be  sustained;  but  not  till  then." 
They  proposed  a  law  to  require  the  banks  to  resume,  February  1,  1841, 
under  penalty  of  forfeiture. 


H 


<■  M 


*  1  McMuUen,  439. 


t  Report  of  the  Central  Bank,  1840. 


!t  i 


l' 


•'  -l 


'Ul 


Jl  i       ^\ 


'^^ 


'     'iJj 


368 


//  HISTORY  OF  BANKING. 


This  committee  introduced  a  bill  which  was  passed.  Decembers?.  1840, 
to  repeal  the  act  of  December  21,  1839,  for  absorbing  into  the  Central  Bank 
the  stock  owned  by  the  State  in  other  banks,  and  to  provide  for  an  issue  of 
bonds  of  the  State  to  the  amount  of  $1  million  in  sums  not  less  than  $s  each, 
redeemable  in  five  years  or  sooner,  bearing  eight  per  cent,  interest,  with 
which  to  redeem  the  notes  of  the  Central  Bank,  and  pay  the  excess  of  the 
appropriations  over  what  the  Central  Bank  could  properly  pay.  These  bonds 
were  to  be  a  debt  of  the  Central  Bank,  to  the  cancellation  of  which  its  assets 
were  to  be  applied  as  fast  as  they  could  be  realized.  Any  one  who  held 
Central  Bank  notes  to  the  amount  of  $s  or  more  might  obtain  these  bonds  in 
exchange  for  them;  but  all  which  were  brought  in  by  any  one  person 
within  a  week,  up  to  $soo,  were  to  be  redeemed  in  one  bond.  The  stock 
owned  by  the  State  in  the  Bank  of  the  State  and  the  Bank  of  Augusta  was 
to  be  sold  not  below  90,  by  the  Central  Bank,  in  order,  with  the  proceeds, 
to  pay  its  debt  to  the  Phoenix  Bank  of  New  York. 

The  appropriation  bill  of  the  same  day  ordered  the  Central  Bank  to 
provide  the  means  to  cash  the  treasury  warrants  outstanding. 

During  the  summer  of  1841  the  Central  Bank  and  a  number  of  others 
failed.  The  substance  had  all  been  eaten  out  of  the  Central  Bank  by  the 
measures  which  the  Legislature  had  adopted  during  the  last  four  years;  that 
is  to  say,  by  the  attempt  of  the  State  to  live  on  it.  In  July  Gouge  reported : 
"The  Bank  of  Darien  is  now  'broken  to  all  intents  and  purposes.'  "  The 
amount  of  its  issues  was  uncertain  and  in  fact  unknown.  In  the  same 
month  it  was  reported :  ' '  The  Chattahoochee  Railroad  Bank  of  Georgia  which 
has  just  closed  its  doors  is  said  by  the  "Jeffersonian,"  published  at  West 
Point,  Ga.,  to  have  been  a  stupenduous  fraud.  The  whole  country  is 
flooded  with  its  issues  amounting  to  millions,  and  yet  it  never  had  ten 
thousand  dollars  of  specie  in  its  vault.  Its  nominal  capital  was  $3  millions, 
but  it  is  averred  that  three  million  cents  were  never  paid  in.  The  very 
first  step  in  obtaining  its  charter  was  a  fraud  on  the  Legislature,  as  the 
making  of  a  road  was  never  in  serious  contemplation."  Now  it  is  said  to 
have  failed.  As  specie  payments  were  suspended  how  could  it  fail }  "There 
is  scarcely  a  man  or  a  woman  in  that  part  of  the  State  who  has  any  bills  at 
all  but  has  most  of  them  on  this  bank."* 

In  connection  with  these  difficulties  a  custom  was  introduced  which 
became  somewhat  famous  as  the  "Macon  specific."  Prices  were  set  in 
specie  and,  if  notes  were  offered,  they  were  taken  at  their  quotation. 

The  Bank  of  the  State  of  Georgia  avoided  with  considerable  difficulty  a 
suspension  in  1841.  There  was  a  defalcation  in  the  branch  at  Macon  by  two 
prominent  officers,  and  a  falsification  of  the  note  issue  to  the  extent  of  more 
than  $50,000.  The  bank  complained  of  the  oppression  of  specie-paying 
banks  due  to  the  extensive  circulation  of  the  notes  of  the  non-specie-paying 
banks.     In  the  following  year  these  complaints  were  renewed.     The  circu- 


*  Gouge :  Journal  of  Banking,  a]. 


THE  LIQUIDATION;  1S42  TO  184^. 


1(M) 


lation  of  this  bank  had  been  reduced  to  $22b,qqi,    while   it   held   specie 
$201,261. 

The  bank  circulation  of  this  State  was  $8  millions  in  1836;  $1.7  millions 
in  1841 ;  $2.4  millions  in  1846. 

In  October.  1841,  the  State  owned  $i2S.ooo  of  the  stock  of  the  Bank  01 
Darien.  Of  the  stock  formerly  owned  by  individuals,  the  bank  had  bought 
in  all  but  $94, 14s.  Therefore  the  State  owned  the  wreck,  and  it  was  a 
question  if  it  was  not  liable  for  all  the  debts.* 

At  the  session  of  184 1-2,  the  Legisl.iture  began  by  an  enactment, 
December  10,  1841,  that  if  the  banks  which  were  liable  to  forfeiture  would 
resume  by  January  ist,  all  proceedings  should  be  arrested.  On  the  .same 
day  the  charier  of  the  Darien  Bank  was  repealed.  The  ("entral  Bank  was 
ordered  to  take  its  assets  and  wind  it  up,  extending  the  k)ans  if  necessary  or 
expedient.  The  Central  was  also  to  receive  the  notes  of  the  Darien  Bank  in 
payment  of  debts  to  the  Darien.  interest  on  the  debt  of  the  State  was  to  be 
paid  at  the  Central  Bank.  The  act  for  issuing  eight  per  cent.  State  bonds  to 
redeem  the  circulation  of  the  Central  Bank  was  also  repealed,  and  that  bank 
was  ordered  to  make  no  loan  until  it  could  hold  its  circulation  at  par  with 
that  of  specie-paying  bank.s.  No  note  of  an  insolvent  person  might  be  used 
as  banking  capital  on  which  a  note  issue  might  be  based. 

November  24th,  banks  were  given  the  right  to  recover  damages  if  they 
could  not  collect  balances  from  other  banks.  The  free  banking  act  was 
amended,  December  7th,  to  authorize  the  Comptroller,  if  banks  did  not 
redeem,  to  foreclose  mortgages  in  the  banking  fund  and  sell  land  and  slaves 
by  the  same  process  by  which  personal  property  might  be  sold.  The 
president  and  directors  of  the  bank  were  to  indicate  which  mortgages  should 
be  sold.  December  8th.  the  Central  Bank  was  authorized  to  i.ssue  ones  and 
twos  to  the  aiiK  unt  of  $300,000.  to  be  issued  only  in  exchange  for  larger 
notes.  The  prohibition  of  small  notes  was  maintained  against  the  other 
banks.  December  loth,  it  was  directed  to  sell  the  stock  owned  by  the 
State,  in  the  Bank  of  the  State  and  the  Bank  of  Augusta,  and  with  the 
proceeds  to  redeem  its  own  notes. 

in  the  following  May,  there  were  reports  of  outrages  in  Georgia  to  pre- 
vent sales  by  the  sheriff,  and  judgments  by  the  court  against  debtors. 

in  the  report  of  the  Bank  of  the  State  of  Georgia,  April  26,  1842,  it  was 
shown  that  the  dividends  must  be  passed,  which  had  occurred  only  three 
times  before.— namely,  in  182?  and  1824,  since  1816.  Three  of  the  branches 
were  withdrawn,  defalcations  having  taken  place  in  two  of  them  and  the 
parent  bank  being  under  a  heavy  burden  to  redeem  their  circulation.  The 
report  of  this  bank  for  1843  showed  that  the  circulation  was  still  but  slightly 
in  excess  of  the  specie  stock. 

December  27,  1842,  all  the  solvent  specie-paying  banks  were  allowed  to 
issue  ones,  twos,  threes,  and  fours,  for  not  more  than  five   per  cent,   of 


Hi 

I 


\'\ 


M   ' 


\  « 


\<    \ 


'     'H 


34 


•  18  Ctorgij,  7J.    S«  (ugc  370- 


170 


A  HISTORY  or  RANKING. 


their  Ciipitiil.  December  13th,  it  w;is  enacted  that  banks  which  have  forfeited 
their  charters  shall  be  wound  up  by  three  commissioners  appointed  by  the 
Governor,  suit  to  be  instituted  against  the  stockholders  for  any  deficiency; 
but  this  was  not  to  apply  to  the  Central  Bank. 

All  the  acts  of  the  last  four  years  which  had  laid  burdens  on  the  Centra! 
Bank  were  repealed  December  22.  1841.  Payments  on  account  of  the  State 
debt  and  of  the  appropriations  were  to  be  made  at  the  treasury,  which  thus 
once  more  assumed  all  its  own  fiscal  functions  which  were  taken  from  the 
bank.  The  Central  Bank  was  to  do  no  more  business.  Any  surplus  revenue 
of  the  State  was  to  be  applied  to  the  payment  of  its  notes,  which  were  to  be 
burned.  A  number  of  the  banks  were  at  this  time  winding  up  under  assign- 
ment. The  assignments  were  approved  by  the  Legislature  because  nobody 
could  be  found  who  was  willing  to  be  a  receiver. 

December  28,  1843,  it  was  enacted  that  after  February  1,  1844,  all  pay- 
ments from  the  State  treasury  should  be  in  specie  or  specie  (unds.  The 
Governor  was  authorized  to  issue  bonds  at  seven  per  cent.,  payable  in  New 
York,  for  not  more  than  $iso,ooo,  in  order  to  get  the  fund.  An  equivalent 
amount  of  Central  Bank  notes  was  to  be  withdrawn  from  the  treasury  and 
burned.  The  charter  of  the  Central  Bank  was  extended  in  liquidation,  from 
time  to  time,  until  i860.  In  an  act  of  February  22,  i8so,  it  was  recited  that 
the  State  was  liable  for  claims  on  account  of  the  Darien  Bank,  many  of  which 
were  believed  to  be  illegal  and  unjust.  The  directors  of  the  Central  Bank 
were  ordered  to  inquire  on  what  terms  they  could  all  be  settled.  In  18^4. 
there  was  an  arbitration  between  the  State  and  the  creditors  of  the  Darien 
Bank.  The  Governor  was  authorized  by  law  to  issue  bonds  to  .settle  the 
State's  obligation.  A  number  of  suits  were  begun  against  the  State,  in  i8ss, 
to  test  its  liability  for  the  debts  of  the  Bank  of  Darien.  It  was  held  that  the 
debt  of  an  insolvent  to  the  State  had  priority  over  other  debts,  which 
priority  the  State  did  not  lose  by  becoming  a  stockholder;  furthermore,  that, 
as  the  State  had  redeemed  more  than  half  the  circulation  of  the  bank,  it  had 
no  further  liability  as  a  stockholder.*  In  1856  the  ussets  of  the  Central  Bank 
were  absorbed  into  the  treasury. 

Florida. — A  stay  law  was  passed  in  1842,  postponing  execution  upon 
the  payment  of  costs  and  ten  per  cent,  on  the  debt  every  sixty  days.  The 
Governor,  in  his  message  of  January,  1843,  said  that  it  was  good  but  did  not 
go  far  enough;  and  he  recommended  a  redemption  law,  with  liberty  to  the 
debtor  to  recover  his  property  within  a  specified  time  by  paying  to  the  pur- 
chaser the  price,  with  interest. 

The  Committee  on  Corporations  of  1842  charged  the  managers  of  the 
Union  Bank  with  negligence  and  every  kind  of  abuse  and  malfeasance  in 
banking,  but  declared  them  all  vices  incident  to  the  system  on  which  the 
bank  was  based,  and  not  the  peculiar  fault  of  the  managers. 

We  have  seen  that  the  Territorial  Council  chafed  under  the  attempts  of 

*  18  Georgia,  65. 


^WHiwaftetfS**'^- 


.■tHi|V'%?>5^3^ff^*^,_ 


^m 


run  I.K^UIDATION!  1843  TO  1843. 


37' 


Congress  to  rcstniin  thrin  when  they  were  engiined  in  their  wiKI  b-inkiri).; 
legisliition.*  Now  this  committee  nKiJe  it  ;m  ;ir^Mimenl  for  repuJi.itin},'  the 
Territorial  debt  th.tt  the  homls  h.id  "lieen  irejitid  l\v  a  j,'overniiient  Hot 
of  the  people,  Init  placed  over  them — a  mere  temporary  arrangement  by 
Congress,  a  police  regulation  only,  a  fugacious  institute,  thrcr  removes 
below  even  the  Legislature  of  a  State,  and  whicii.  in  chartering'  tins  b.ink. 
[Union  Bank  of  rif)rida|  and  issuing  these  bonds,  has  attempted  to  usurp 
iWO  of  the  highest  attributes  of  sovereign  power.  These  .agents  of  feileral 
authority  in  the  selection  of  but  part  of  which  to  rule  over  us  the  citizens  of 
l-iorida  are  permitted  by  Congress  to  have  a  voice  have,  by  this  charter, 
sought  to  make  us  subject  to  their  unlimited  taxation,  and  render  our  pos- 
terity hereditary  bondsmen." 

The  Governor,  in  1S4S,  charged  upon  the  federal  government  "an 
unwise  and  ruinous  legislation  ♦  •  *  worse,  if  possible  than  war,  pesti- 
lence, and  famine, — I  mean  the  blighting  inlluence  of  a  corrupt  and  cor- 
rupting paper  system,  so  utterly  rotten  that  I  cannot  undertake  its  dis- 
section." 

The  renewed  Bank  of  Florida  went  into  operation  in  184^  A  yea.  later 
another  Governor  had  to  report  upon  "the  evils  which  have  attemled  the 
renewal  of  the  Bank  of  Florida,  the  last  in  the  series  of  inf.itu.iteil  experi- 
ments." He  quoted  sarcastically  the  passages  in  the  messages  of  the  two 
previous  years,  in  which  the  former  Governor  h.id  introduced  this  new 
enterprise  with  approval,  the  latter  one  he  says,  uttered  "but  a  few  weeks 
before  the  bank  escaped  your  jurisdiction  bv  (light." 

The  debt  of  the  Territory  was  $«ioo,ooo  for  Indian  wars  and  Src)  millions 
for  banks. t 

in  January,  1844,  all  the  banks  of  Florida  were  defunct.  .Speaking  of  the 
Union  Bank,  the  Governor  said:  "The  principal  cause  of  the  delinquency  of 
the  bank  may  be  traced  to  the  elements  of  its  organization.  By  the  pro- 
visions of  its  charter  each  stockholder  had  a  right  to  draw  from  the  bank,  as 
a  permanent  loan,  two-thirds  of  the  value  of  the  property  mortg.iged  by 
them  as  an  indemnity  to  the  Territory.  This  right  has  almost  invariably 
been  exercised,  and  thus  two-thirds  of  the  whole  cajiital  of  the  bank,  raised 
on  the  faith  and  responsibility  of  the  Territory,  has  passed  into  the  hands  of 
a  few  individuals,  who,  with  a  trivial  exception,  have  been  unable  or 
unwilling  to  pay  the  interest.  There  is  now  due  the  b.ink.  from  the  accu- 
mulation of  interest  on  these  loans,  $2i6,(xx),  and  for  interest  on  accommo- 
dation paper  a  greater  amount,  which  has  produced  a  total  inability  on  the 
part  of  this  institution  to  pay  the  interest  due  semi-annually  to  the  bond- 
holders. The  bank  has,  in  many  instances,  resorted  to  legal  process  to 
compel  the  delinquent  stockholders  to  comply  with  their  eng.igements,  but, 
so  far  as  I  am  advised,  it  has  been  hitherto  unsuccessful;  and  the  opinion  is 
entertained  by  many  that  the  stockholders  may  continue  to  enjoy  the  loan 


*  Sk  pages  148,  318. 


t  Johnson's  Report  on  Assumptlun. 


I         1) 

i         ' 

:.    ''I 

I' 


i^ 


■  m 


''I 
,•'1! 


' 


^' 


I'l 


h  ]i 


312 


A  HISTORY  OF  BANKING. 


\i    ffi 


'   I     \ 


until  the  expiration  of  the  time  specified  in  the  mortgages  (most  of  which 
have  yet  upwards  of  twenty  years  to  run),  without  the  payment  of  any  por- 
tion of  their  annual  interest,  and  continue,  at  the  same  time,  to  enjoy  the 
possession  and  use  of  the  property  mortgaged  to  the  bank.  This  opinion 
appears  to  me  as  absurd  in  its  conception  as  it  is  demoralizing  in  its  ten- 
dency." 

The  Secretary  of  State  of  Florida  replied  to  the  inquiries  of  the  Secretary 
of  the  Treasury,  1847:  "The  General  Assembly  of  this  State,  doubting  the 
right  of  institutions  of  this  character  chartered  by  the  Territorial  Legislature 
to  exercise  corporate  privileges  in  this  State,  has  not  acted  on  their  reports 
or  legislated  concerning  them."  The  same  officer  replied,  in  1848,  that  the 
authorities  of  the  State  had  avoided  any  communication  with  the  banks, 
lest  they  should  appear  to  recognize  their  pretended  charters  and  legal 
existence.  The  banks  were  always  referred  to  in  public  acts  as  "alleged  " 
or  "  pretended."  The  notes  of  the  Union  Bank  were  worth  20  cents  on  $1 
and  those  of  the  Life  and  Trust  Company  less. 

Alabama. — An  act  was  passed,  February  3,  1840,  which  was  another 
link  in  the  extension  system  begun  by  the  act  of  June  30,  1837,  whose  con- 
sequences we  shall  soon  see.  It  was  made  lawful  for  the  Bank  of  the  State 
and  branches  to  collect  twenty  per  cent.,  and  interest,  on  all  debts  to  the 
bank,  including  the  extended  debt,  until  the  Legislature  otherwise  orders, 
in  such  a  w^y  "as  to  conform  to  the  safety  of  the  said  several  banks  and  to 
the  ability  of  the  debtors  to  discharge  the  same;"  the  debtors  giving  secu- 
rity. It  will  be  observed  that  the  three  years'  extension  from  1837  would 
expire  in  the  following  June,  when,  if  the  debtors  had  fulfilled  the  terms  of 
the  extension,  all  the  old  accounts  should  be  cleared  off.  Resumption  was 
postponed  until  July  i,  1841.  The  Bank  of  the  State  at  Tuscaloosa  and  the 
branches  at  Montgomery  and  Huntsville  were  "  authorized  "  to  issue  each 
$SOo,ooo  in  twelve  months' post-notes;  the  Mobile  and  Decatur  branches 
were  "required"  to  issue  the  same.  The  Board  of  Control  was  abolished. 
The  Planters  and  Merchants'  Bank  of  Mobile  and  the  Bank  of  Mobile  were 
authorized  to  issue  post-notes,  lowest  denomination  $10,  at  twelve  months, 
to  any  amount  they  think  best,  not  exceeding  $1,00,000  each;  but  the  Legis- 
lature reserved  the  right  to  change  this  permission. 

The  Governor,  in  his  message  of  1840,  stated  that  two  sets  of  directors 
elected  by  the  Legislature,  and  the  members  of  the  Legislature  of  two  suc- 
cessive years,  obtained  accommodations  to  a  larger  amount,  and  will  prob- 
ably be  the  cause  of  greater  loss  to  the  banks,  than  the  whole  community 
besides. 

The  report  of  the  president  of  the  Bank  of  the  State  at  Tuscaloosa,  Octo- 
ber 4,  1840,  stated  that  the  amount  of  debts  due  to  that  bank  and  made 
extendable  by  the  act  of  February  3,  1840,  amounted  to  $3.9  millions.  The 
amount  actually  extended  up  to  the  time  of  this  report,  was  $1  million. 
The  bank  construed  the  section  of  the  same  act  which  authorized  each  of 
the  specie-paying  banks  to  issue  $500,000  in  post-notes,  and  each  of  the 


1 


■'  * 


THE  LIQUIDATION;  1842  TO  1845. 


31} 


suspended  hnnks  to  issue  thf  same  amount  in  counter  notes,  as  an  order  to 
extend  the  circulation  and  business  of  each  bank.  This  bank  had  acted  on 
that  understanding. 

A  committee  of  the  directors  of  the  same  bank  said  that  the  books  of  the 
bank  for  1839,  the  period  they  were  set  to  investigate,  "seemed  to  be  in 
great  confusion,  with  errors  almost  on  every  page,  to  correct  which  it 
would  require,  in  the  opinion  of  your  Committee,  the  services  of  at  least 
two  competent  clerks  for  twelve  months."  They  were  trying  to  find  how 
a  leaf  had  been  cut  out  of  the  check-book  and  had  disappeared. 

The  Commissioners  on  the  same  bank,  in  their  report  of  November  5; 
1840,  stated  that  they  had  given  particular  attention  to  the  cotton  transac- 
tions, which  had  been  persisted  in  until  immediately  before.  "  It  will  be 
difficult  to  imagine  any  cause  that  ultimately  will  be  so  disastrous  to  the 
institution."  They  anticipated  reclamations  to  be  made  on  shippers  for  a 
deficiency  in  the  realizations  compared  with  the  advances,  to  the  amount  of 
$478,747.  "In  view  of  the  vast  amount  of  reclamations  as  shown;  the  great 
number  of  bales  never  delivered,  the  payment  being  almost  universally 
reMsted  (without  exception,  it  is  believed,  in  all  large  amounts),  with  the 
most  confident  hope  of  defeating  the  bank  of  its  just  dues;  and  many  of  the 
parties  believed  to  be  insolvent,  or  have  taken  measures  to  be  so,  as  regards 
the  bank — taking  all  these  things  into  consideration,  a  more  ruinous  and 
reckless  administration  of  the  affairs  of  the  bank  could  not  well  have  been 
devised."  They  complain  of  the  negligence  and  remissness  of  the  officers 
of  the  bank  in  regard  to  pursuing  debtors,  and  a  delinquent  attorney  of  the 
bank.  They  had  ascertained  a  certain  loss  of  $S40,76i,  and  anticipated 
losses  on  cotton  to  the  amount  of  $700,000.  Forced  balances  had  been 
made  in  the  books  to  cover  errors. 

The  Commissioners  on  the  Mobile  branch,  1840,  .eported  that  its  surplus 
or  sinking  fund  of  $1  million  consisted  only  of  book-keeping  entries,  show- 
ing apparent  profit,  and  discount  charges  which  had  not  been  collected  or 
realized.  "  We  are  afraid  that  its  qualities  as  a  sinking  fund  are  altogether 
imaginary  and  that  a  much  larger  amount  will  be  swallowed  up  by  the  hope- 
lessly bad  debt."  An  illustration  of  what  they  ni'  ant,  and  also  of  the  way 
in  which  the  "relief"  actually  came  to  the  debtor,  is  furnished  by  the  fol- 
lowing facts:  The  extension  laws  enjoined  strictly  that  at  every  renewal 
twenty  per  cent,  of  the  debt  must  be  paid,  and  interest  in  advance  at  eight 
percent.  "The  bank  rule  has  been  to  compute  discount  for  tiie  whole 
term  at  eight  percent.,  and  require  notes  which  at  that  rate  of  discount 
would  produce  the  net  amount  of  the  whole  debt  in  cash."  This  produced 
an  annual  interest  rate  of  about  thirteen  and  two-thirds  per  cent.  The 
Commissioners  showed  that  the  excess  of  immediate  liabilities  over  imme- 
diate means  had  increased,  in  1840,  §'512,890,  "which  is  about  the  amount 
which  the  Leg'slature  required  the  bank  to  issue  of  its  own  paper,  by  the 
relief  act  of  the  3d  of  February  last,  at  a  period  when  the  utmost  prudence 
was  required  to  give  some  hope  of  so  reducing  its  liabilities  as  to  be  able  to 


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prepare  for  resumption."  They  tried  to  find  out  the  value  of  the  assets. 
The  amount  of  paper  under  protest  was  $4.6  millions,  of  which  there  was  in 
suit  $1.9  millions.  Of  the  bills  discounted,  not  under  protest,  twenty  per 
cent,  had  been  extended,  under  the  relief  law  of  February,  1840,  Of  the  re- 
mainder, $1.7  millions,  a  large  part  consisted  of  paper  which  had  been  ex- 
tended under  the  relief  law  of  1837,  "wiiich  will  take  its  place  at  maturity 
among  protested  paper  or  paper  further  extended.  It  follows  that  of  the 
immense  debt  due  to  the  bank,  hardly  ten  per  cent,  exists  in  a  form  which 
justifies  any  calculation  upon  its  being  made  available  or  active  within  any 
definite  period.  *  *  *  The  new  transactions  within  the  last  year  or  two  have 
been  few,  and  they  are  generally  safe;  but  it  is  the  load  of  debt  accumulated 
in  former  years,  under  which  the  bank  broke  down,  in  1837  and  1838,  that 
has,  under  the  State  policy  of  extension,  been  weakening  its  resources  and 
eating  out  the  substance  of  its  assets  constantly." 

A  report  of  the  president  of  the  Mobile  branch,  at  the  same  time,  stated 
that  the  errors  which  had  been  discovered  in  the  bills  discounted  amounted 
to  $378,036,  and  in  the  bills  protested  to  $72,853.  As  the  notes  which  had 
been  discounted  by  that  bank  since  it  began  amounted  to  $48  millions,  he 
thought  these  errors  comparatively  slight. 

The  Commissioners  on  the  Decatur  branch  reported  that  they  found  its 
books  "kept  in  a  style  of  the  utmost  clerkly  accuracy."  "From  all  the  in- 
formation they  have  been  able  to  obtain,  they  have  ascertained  the  amount  of 
bad  debts  to  have  swollen  to  a  fearful  and  an  enormous  height."  They  esti- 
mate them  at  $1  million.  The  amount  of  debts  in  suit  was  $981,966.  The 
Commissioners  are  afraid  that  the  plan  of  demanding  security  on  property 
for  accommodation  loans  will  arouse  the  animosity  of  the  public  against 
institutions,  and  they  find  that,  in  spite  of  care,  "the  property  substituted 
has  been  at  the  most  mflated  rate  of  valuation."  The  president  of  this 
branch  reported  that  he  had  hoped,  under  the  extension  law,  to  recover  all 
the  debts  "which  had  the  least  appearance  of  being  good,"  but  he  regrets 
to  say  that  "many  of  undoubted  character  have  been  suffered  to  remain 
suspended,  without  any  apparent  effort  being  made  to  comply  with  the 
requisitions  of  the  bank."  This  is  valuable  testimony  to  the  only  natural 
and  inevitable  effect  of  the  extension  laws, — namely  to  induce  the  honest 
and  solvent  debtors  not  to  pay,  lest  they  should,  in  that  way,  fail  of  some 
indulgence  which  their  negligent  comrades  would  get.  If  any  did  pay, 
there  would  be  a  glaring  case  of  that  inequality  which  the  advocates  of 
Banks  of  the  State  were  always  trying  to  avoid. 

The  president  of  the  Bank  of  the  State,  in  1840,  said  of  the  independent 
Bank  of  Mobile:  "It  has  successfully  withstood  all  the  commercial  and 
financial  derangements  the  country  has  recently  suffered,  and  now  deserv- 
edly sustains  a  high  character  for  credit  and  strength  surpassed  by  none  in 
any  section  of  the  country." 

The  suspension  of  the  Bank  of  the  State  was  sanctioned  April  27,  1841, 
until  the  Legislature  should  otherwise  order.     The  requirement  in  the  act  of 


mmm 


THE  UQ^UIDATION ;  1842  TO  184$. 


3T> 


June  30,  1837,  that  this  bank  and  its  branches  should  provide  themselves 
with  gold  was  suspended,  but  the  two  chartered  banks  in  Mobile  were 
required  to  have  in  their  vaults,  on  July  ist  of  each  year,  one-half  of  their 
note  issue,  but  not  more  than  one-quarter  of  their  capital,  in  specie. 

In  the  report  of  the  Bank  Commissioners  for  1841,  a  long  list  of  notes 
which  they  found  in  the  Montgomery  branch  of  the  Bank  of  the  State  is 
given,  with  notes  and  comments.  These  are  almost  always  to  the  effect 
that  the  principal  and  sureties  are  not  worth  a  dollar.  There  are  three  notes 
signed  by  the  same  three  persons  in  turn,  as  principal  and  sureties.  One  is 
the  father,  who  is  reported  as  a  poor  man;  the  other  two  are  his  sons,  ten 
and  four  years  of  age.  An  agent  of  the  bank  recommended  some  notes  for 
discount  which  he  received  from  two  persons  whom  he  did  not  know. 
They  were  discounted  and  a  person  whom  he  did  not  know  called  on  him 
with  an  order  for  the  money,  signed  he  does  not  say  by  whom,  but  he  gave 
him  the  money  and  took  his  receipt,  signed  "C.  Stone."  He  can  only  say 
that  it  was  not  the  only  "C.  Stone"  known  to  him.  Later  events  prove 
that  this  agent  was  a  knave  and  not  a  fool.  It  turned  out  that  the  notes 
which  he  had  thus  sent  in  to  the  bank  were  forged. 

A  law  was  passed  December  27,  1841,  that  any  member  of  the  Legisla- 
ture who  nominated  a  director  of  the  State  Bank  or  branches  should  state  in 
writing  the  amount  of  indebtedness  of  the  candidate  to  the  bank  and 
branches,  whether  he  was  under  protest,  and  was  solvent  and  competent. 
December  31st,  the  authorities  of  the  State  Bank  and  branches  were  author- 
ized to  settle  as  well  as  they  could  unknown,  bad,  and  doubtful  debts  to  the 
bank.  A  joint  Investigating  Committee  was  ordered  to  be  raised  to  investi- 
gate frauds  on  the  State  Bank  and  neglect,  abuse,  and  misconduct  in  the 
management,  with  full  powers. 

The  Planters  and  Merchants'  Bank  of  Mobile  fai'  d  October  25,  1842.  Its 
charter  was  forfeited  and  receivers  were  appointed  to  wind  it  up  by  an  act 
of  February  13,  1843. 

At  the  session  of  1842-3,  the  affairs  of  the  State  Bank  become  a  prepon- 
derating subject  of  interest.  December  31st,  joint  resolutions  were  adopted 
in  regard  to  preparations  for  liquidating  the  branches  at  Mobile  and  Decatur. 
They  are  no  longer  to  lend  on  notes  and  bills,  or  to  settle  with  debtors;  but 
may  accept  payments  offered,  or  may  buy  in  property  sold  at  the  suit  of 
the  bank. 

The  Montgomery  Branch  was  put  in  liquidation  January  25,  1843.  Its 
notes  were  to  be  received  for  debts  to  it  and  destroyed.  Quarterly  settle- 
ments were  to  be  made  with  the  Bank  01  the  State  and  its  branches.  It 
was  provided  that  whenever  the  State  Bank  and  the  surviving  branches 
should  resume,  they  should  redeem  the  notes  of  the  Montgomery  Branch  as 
well  as  their  own.  Similar  acts  were  passed  in  regard  to  the  other  branches. 
February  13th,  the  right  of  any  plaintiff  in  a  suit  against  the  State  Bank  and 
branches  to  have  garnishment  against  a  debtor  of  the  bank  was  taken  away. 
On  the  following  day  it  was  provided  that  during  suspension  by  the  Bank 


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A  HISTORY  OF  BANKING. 


of  the  State  it  should  discount  no  note  except  for  renewal,  nor  deal  in  bills 
of  exchange  except  to  pay  interest  on  the  State  debt.  Thirty  per  cent, 
damages  were  laid  upon  any  bill  bought  by  the  bank,  which  should  be  pro- 
tested. The  number  of  officers  was  reduced  and  the  bank  was  ordered  not 
to  pay  out  any  more  notes.  Small  notes  might  be  issued  in  exchange  for 
notes  of  $ioo  or  more.  All  the  specie  of  the  branches  was  to  be  controlled 
by  the  Bank  of  the  Slate  at  Tuscaloosa,  and  the  president  and  directors  of 
that  bank  were  to  provide  for  the  interest  on  the  State  bonds  issued  for  the 
branches.  The  Commissioners  under  the  act  of  1833  were  directed  to 
examine  the  bank  and  branches,  especially  the  expense  account  from  Janu- 
ary 1,  183s,  with  reference  to  certain  illegal  expenditures.  The  Governor 
was  to  institute  suit,  such  as  the  facts  might  call  for,  to  recover  the  illegal 
expenditure.  On  the  same  day  with  these  enactments,  joint  resolutions 
were  adopted  against  assumption  and  repudiation. 

The  Legislature  renounced  the  function  of  electing  the  directors  of  the 
Bank  of  the  State,  December  is,  1843,  assigning  it  to  the  Governor.  A 
measure  was  also  adopted  to  extend  until  iSso  the  bonds  which  would  fall 
due  in  1844. 

The  debt  of  Alabama,  in  1844,  was  $14.1  millions,  of  which  $9.2  millions 
was  for  bonds  outstanding,  "issued  by  the  State  in  aid  of  her  late  banking 
operations."  The  total  included  $3  millions  bank  notes  and  also  the  univer- 
sity and  school  fund,  $1.2  millions,  which  had  been  used  up.  The  Com- 
mittee on  Ways  and  Means  had  come  to  the  conclusion  "however  reluc- 
tantly, that  not  more  than  $7  millions  of  the  debts  due  from  individuals, 
including  real  estate  and  all  available  assets,  can  ever  be  realized"  from 
what  is  due  to  the  banks. 

The  Commissioners  to  examine  the  Mobile  Branch  in  1844,  found  errors 
and  discrepancies  in  the  accounts,  in  regard  to  which  they  said:  "The 
general  source  of  the  error  is  the  want  of  system  and  carelessness  of  the 
officers  in  former  years  by  which  confusion  and  discrepancies  were  introduced, 
which  no  possible  amount  of  labor  can  now  trace  and  correct."  Having 
examined  the  debts  due  to  the  bank  amounting  to  Ss-V  millions,  they  valued 
them  at  $2.}  millions,  fearing  that  they  had  put  them  too  high.  They 
valued  the  real  estate  owned  by  the  bank  at  $250,000.  It  stood  on  the 
books  at  $1.3  millions.  Recapitulating  all  the  assets,  they  found  that  they 
were  worth  $2.6  millions,  although  standing  on  the  books  at  $7.4  millions. 
The  total  liabililities  were  $6. 1  millions,  so  that  they  found  a  deficiency  in 
this  one  Branch  of  $3.4  millions.  The  clue  to  the  accounts  of  the  bank 
must  have  been  entirely  lost.  "In  the  year  1840,  after  much  trouble 
and  the  application  of  the  labor  of  two  clerks  to  the  investigation  of  these 
books,  the  further  prosecution  of  the  task  was  abandoned  as  hopeless." 

The  Governor,  in  his  message  of  1845,  referring  to  the  losses  which  the 
various  investigations  had  discovered,  said:  "The  causes  which  have 
brought  about  these  continuous  and  heavy  losses  are  readily  discovered  by 
a  recurrence  to  the  history  of  their  management,  the  whole  tenor  of  which 


'■■■■roBatr.. 


THE  LIQUIDATION ;  1842  TO  i84<i. 


377 


proves,  bevond  doubt,  that  less  regard  has  been  had  to  the  interests  of  the 
bank  than  to  the  convenience  and  accommodation  of  their  debtors."  The 
outstanding  loans  of  the  bank  and  branches,  in  1837,  had  been  $20  millions, 
of  which  about  $100,000  were  considered  bad,  and  $100,000  doubtful. 
Then  came  the  extension  law  of  June,  1837.  In  1840,  the  bad  debts  had 
increased  to  more  than  $3.5  millions  and  the  doubtful  were  $1.5  millions, 
while  a  new  item  was  introduced,  "unknown  debt,"  amounting  to  more 
than  $i.2s  millions.  Then  came  the  act  of  February  9,  1840,  the  effect  of 
which  was  that  in  1844  the  good  debts  were  $6.9  millions,  the  doubtful 
$484. 132,  the  bad  $6.2  millions.  "This  cursory  glance  at  the  history  of  the 
legislation  and  management  of  our  banks  must  clearly  show  that  the  extension 
laws  and  the  manner  of  their  execution  were  the  principal  causes  of  the 
immense  losses  sustained  by  these  institutions."  As  the  bank  and  branches 
were  now  defunct,  he  took  it  for  granted  that  no  one  would  propose  to 
re-issue  the  notes  after  they  should  be  paid  in  in  taxes  or  debts  to  the  bank, 
"This  suicidal  policy,  I  trust,  will  not  be  adopted,  even  as  a  temporary 
measure.  It  involves  the  same  principles  which  have  too  long  prevailed  in 
the  management  of  our  bank, — favoring  the  bank  debtors  at  the  expense  of 
the  taxpayers  of  the  State.  *  *  *  Bank  debtors  should  understand  that 
the  laws  are  intended  to  operate  equally  on  all,  not  to  spend  their  force  on 
one  portion  who  regard  them ;  then  to  be  changed  and  modified  to  suit  the 
convenience  of  other  portions  who  treat  them  with  neglect.  *  *  *  jn 
connection  with  tliis  subject,  I  submit  to  your  consideration  the  propriety  of 
causing  a  rigid  scrutiny  into  the  conduct  of  the  officers,  attorneys,  and 
agents,  under  whose  management  the  astounding  losses  to  our  banks  have 
accrued,  holding  them  to  a  strict  accountability." 

The  Bank  of  the  State  at  Tuscaloosa  was  put  in  liquidation  December  31, 
1844,  the  day  on  which  its  charter  expired  by  limitation.  From  this  time 
the  old  independent  Bank  of  Mobile  was  the  only  bank  left  in  the  State. 
November  12,  1844,  it  had  $!.•>  millions  capital,  $1.4  millions  loans,  $791,4159 
specie,  $486,440  circulation,  $46^,443  deposits. 

The  liquidation  of  the  Bank  of  the  State  and  its  branches  was  regulated 
by  an  act  of  January  2<^,  i84'5,  in  which  the  consideration  of  leniency  to  the 
debtors  still  prevailed.  All  debts  to  these  banks  were  extended  until  June 
I,  1846,  if,  before  June  i,  184s,  the  debtor  paid  one-third  of  the  principal, 
with  interest  and  costs,  and  gave  additional  security.  Also  all  execution 
on  judgments  in  favor  of  the  bank  was  postponed  one  year  if  one-third  of 
the  debt  was  paid  and  new  security  given.  All  debts  were  to  be  put  in  suit 
between  June  i  and  July  i,  1845.  Good  ones  were  to  be  extended;  bad 
ones  put  in  the  hands  of  an  agent  for  collection;  the  real  estate  of  the  banks 
was  to  be  sold,  the  plates  of  bank  notes  destroyed,  and  incomplete  notes 
burned. 

February  4,  1846,  the  assets  of  the  banks  were  vested  in  three  trustees 
who  were  to  be  appointed  for  a  term  of  two  years,  to  compound  and  settle 
"at  the  earliest  day  that  the  same  can  be  done,  having  regard  alone  to  the 


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interest  of  the  State."  The  debts  which  had  been  extended  to  1846  were 
now  extended  to  1847,  if  one-half  was  paid  before  June  i,  1846,  provided 
that  the  Commissioners  were  of  opinion  that  the  State  would  not  lose.  No 
more  notes  of  the  Bank  of  the  State  were  to  be  burned  unless  it  was 
necessary  to  do  so  to  stop  depreciation.  A  report  of  the  trustees  under  this 
act  made  December  20,  1847,  showed  that  they  had  accomplished  much 
towards  the  liquidation  of  the  bank.  They  had  collected  $3.4  millions,  and 
they  estimated  the  remainder,  which  was  collectible,  at  $2.2  millions.  They 
had  taken  up  in  their  collections,  of  the  circulation  of  the  bank,  $1,142,000. 
The  amount  still  outstanding  was  $457, 177.  The  notes  were  at  that  writing 
nearly  equal  to  specie. 

In  1850  the  Legislature  began  to  pass  special  acts,  extending  debts  to  the 
Bank  of  the  State  on  behalf  of  individuals. 

The  trustee  of  the  Bank  of  the  State  was  directed,  February  4,  1852,  to 
sell  the  stock  owned  by  the  State  in  the  Bank  of  Mobile,  and  to  pay  off  the 
$600,000,  five  per  cent,  bonds,  which  had  been  issued  wherewith  to  buy  it. 
When  this  should  be  done  the  capital  of  the  bank  might  be  increased  from 
$1.5  millions  to  $2.5  millions;  two-fifths  being  reserved  for  the  State  while 
the  charter  runs.  Five  days  later  the  charter  was  extended  twenty  years 
from  the  date  of  expiration,  $100,000  bonus  was  to  be  paid  in  installments 
of  not  less  than  $5,000  per  annum. 

It  appears  that  the  earnest  hope  which  had  been  expressed  by  the 
Governor  in  1845  that  the  notes  of  the  Bank  of  he  State  would  not  be 
re-issued  was  not  fulfilled.  On  the  contrary  the>  seem  to  have  circulated 
until  the  civil  war.  They  could  only  be  regarded  as  pure  bills  of  credit  after 
1847.  An  act  of  February  16,  1854,  ordered  the  trustee  to  give  notes  fit  for 
circulation  in  exchange  for  the  worn  notes  in  the  State  treasury ;  the  latter 
to  be  burned  by  State  officers.  The  unmutilated  notes  under  $5,  which 
were  in  the  treasury,  weie  to  be  given  out  in  exchange  for  large  notes  to 
any  one  who  desired  them,  and  the  small  notes  were  to  be  receivable  by 
the  State.  An  act  of  February  14,  1856,  about  loans  to  railroads,  shows  the 
notes  of  the  Bank  of  the  State  and  branches  still  in  circulation.  The  Gover- 
nor, in  his  message  of  1857  expressed  the  opinion  that  the  time  had  come 
when  the  circulation  of  the  old  Bank  of  the  State  notes  should  no  longer  be 
tolerated.  At  length,  January  22,  1858,  a  law  was  passed  that  all  the  notes 
of  the  Bank  of  the  State  and  branches  in  the  treasury  should  be  burned,  and 
also  all  those  which  should  come  in  thereafter.  Laws  for  the  extension  of 
the  Bank  of  the  State  in  liquidation  were  repeated  until  the  civil  war. 

Mississippi. — The  Legislature  of  1840  turned  against  the  banks.  Some 
charters  were  repealed.  February  6th  post-notes  were  forbidden ;  any  bank 
which  issued  them  was  to  forfeit  its  charter;  resolutions  were  adopted, 
February  ijth,  in  regard  to  the  prevailing  distress,  the  causes,  and  the 
remedies.  The  chief  cause  was  declared  to  be  "excessive  banking."  They 
declared  that  paper  issues  stimulate  speculation  and  extravagance ;  that  it 
was  the  duty  of  the  United  States  and  the  State  governments  to  remedy 


!?.•'! 


■.<ua&iS;i-i:- 


THE  LIQUIDATION;  1842  TO  1845. 


}-:9 


evils  due  to  "unwise  and  reckless  legislation,"  that  metallic  currency  was 
the  only  one  known  to  the  Constitution  of  the  United  States.  They 
pronounced  in  favor  of  the  independent  treasury  with  the  specie  clause. 
February  iijlh,  all  unauthorized  banking  was  forbidden.  It  appears  that 
there  was  a  great  deal  of  it.  Notes  issued  by  unauthorized  banks  were 
declared  void  and  such  banks  were  forbidden  to  do  a  discount  and  deposit 
business.  No  shin  plasters  were  to  be  allowed  to  pass  after  sixty  days 
from  the  date  of  this  law. 

A  relief  law  was  adopted  February  21st,  with  the  old  device  of  three 
valuers  and  two-thirds  of  the  valuation  or  no  sale. 

An  act  requiring  the  banks  to  pay  specie  was  passed  February  21st;  the 
limit  of  note  issue  was  set  at  three  times  the  specie  on  hand;  semi-annual 
statements  were  provided  for;  post-notes  forbidden ;  also  dealing  in  cotton 
or  other  commodities  as  collateral,  or  merchandise;  $5  notes  must  be  paid  in 
specie  from  April  i,  1840;  tens  from  July  1st,  twenties  from  October  ist, 
and  a  general  resumption  was  ordered  January  i,  1841.  Any  bank  officer 
who  refused  to  endorse  on  a  note  his  own  refusal  to  redeem  it  might  be 
fined  $1,000  and  imprisoned  three  months;  no  director  was  to  have  a  loan 
in  his  own  bank.  Voluntary  and  involuntary  liquidation  were  provided  for. 
On  the  next  day  it  was  provided,  by  a  supplementary  act,  that  if  a  bank 
went  into  liquidation,  any  railroad  charter  connected  with  it  should  go 
on.  In  a  case  which  arose  under  this  law,  it  was  held  that  it  did  not  im- 
pose any  new  duty  on  banks  or  infringe  their  charters,  and  was  therefore 
valid.* 

In  February,  the  Brandon  Bank  wanted  to  close  its  branch  at  Paulding. 
A  public  meeting  was  held  at  that  place  to  remonstrate,  at  which  a 
committee  was  appointed,  who  took  possession  of  the  books,  papers,  and 
other  property  belonging  to  the  bank,  and  held  possession  of  them  so  as  to 
make  removal  impossible.! 

In  March,  the  banking  affairs  of  the  State  were  reported  to  be  all  in  con- 
fusion. The  liabilities  of  the  Union  Bank  in  May  would  be  $4  millions,  and 
its  rescources  were  nearly  all  suspended.  Hence  the  desire  to  recall  the 
second  $5  millions  of  State  bonds  which  had  been  issued  to  this  bank. 
The  correspondent  of  a  Mississippi  newspaper  said:  "The  credit  of  the 
State  has  been  banked  to  death.  Insolvency  is  now  our  name.  Never  was 
State  in  such  an  awful  condition.  The  cry  of  'relief  is  heard  on  all 
sides,  but  what  can  a  State  do  that  is  unable  to  pay  its  Legislature  and  the 
current  expenses  of  government.''"  Brandon  notes  were  quoted  at  nine 
cents  on  the  dollar;  the  losses  of  the  Union  Bank  on  cotton  were  immense. 
The  debt  of  the  State  called  for  a  payment  of  $1:20,000,  for  interest,  in  the 
year  1840,  and  an  installment  on  the  principal  of  $i2t,ooo  on  the  ist  of 
January  following.  To  meet  this,  the  resource  was  a  sinking  fund  loaned 
out  to  one  hundred  and  ninety-five  individuals,  on  which,  in  the  opinion  of 


I 


§ 


,    '    ■'    L 


r 


1 1  ' 


*  6  Smedes  and  Marshall,  622. 


t  57  Niles,  420. 


58o 


A  HISTORY  OF  BANKING. 


a  committee  of  the  Legislature,  not  more  than  $200,000  could  be  realized  in 
the  course  of  four  years.* 

May  23d,  the  "Free  Trader"  said  that  there  was  not  a  dollar  of  par  funds 
in  the  Treasury.  The  public  printer  would  not  print  a  document  until  he 
was  paid  in  good  money,  f 

Under  the  resumption  act  of  February  21st,  the  Governor  proclaimed, 
July  loth,  that  the  Union  Bank  had  forfeited  its  charter  by  suspending  the 
payment  of  its  notes,  t  Some  time  in  the  autumn,  that  bank  made  an  assign- 
ment. The  report  in  December  was  that  lands  and  negroes  had  lost  one- 
half  their  value;  that  on  the  expiration  of  the  year  of  delay,  under  the 
appraisement  law,  the  population  was  leaving  the  State  for  Texas.  "Banks 
are  in  the  worst  odor  possible.  "§ 

The  Commercial  and  Railroad  Bank  of  Vicksburg  made  an  assignment, 
in  1840,  in  order  to  cut  off  the  creditors  of  the  bank,  that  is,  the  note-holders, 
until  the  railroad  should  be  built.  This  assignment  was  overthrown,  being 
a  withdrawal  of  the  assets  from  the  rightful  claim  of  the  creditors.  || 

We  can  learn  scarcely  anything  about  the  liquidation  of  the  Union  Bank. 
The  State  ignored  it.  There  is  scarcely  a  trace  of  it  in  legislation  or  court 
records.  The  trustee  of  the  Bank  of  the  State  of  Alabama,  in  1847,  speak- 
ing of  the  plan  of  selling  ihe  credits  of  the  bank  at  auction,  objected  that 
that  plan,  in  the  case  of  the  Union  Bank  of  Mississippi,  had  proved  to  be 
almost  a  complete  sacrifice  of  them. 

Among  the  first  acts  at  the  session  of  1841  was  one  to  repeal  the  law  of 
May  12,  1837;  to  guard  against  the  insolvency  of  banks,  and  to  secure  the 
rights  of  creditors. 

Governor  McNutt,  in  his  message,  January  5th,  stated  that  the  Union 
Bank  had  $4,349  in  specie  on  hand;  suspended  debt  in  suit,  %2.6  millions; 
ditto  not  in  suit,  $1.7  millions;  resources  chiefly  unavailable,  $8  millions;  im- 
mediate liabilities,  $3  millions;  not  more  than  one-third  of  the  debts  could  be 
collected  and  the  whole  capital  was  lost.  "The  bank  has  seven  thousand 
bales  of  cotton  in  Liverpool  unsold,  on  which  it  has  drawn  $267, 1 16. 14.  An 
advance  of  $60  per  bale  was  made  to  the  planters  upon  that  cotton  in  1838. 
They  will  sustain  a  clear  loss,  including  interest,  of  $30  per  bale;  equal,  in 
the  aggregate,  to  $210,000.  The  bank  has  been  irretrievably  ruined  by 
making  advances  upon  cotton,  issuing  post-notes,  and  loaning  the  principal 
portion  of  her  capital  to  insolvent  individuals  and  companies.  The  situation 
of  the  Mississippi  Railroad  Company  and  of  the  Planters'  Bank  is  equally 
bad.  The  former,  in  the  year  1839,  issued  about  a  million  and  a-half  of 
post-notes,  and  expended  them  in  constructing  the  railroad  and  building 
extensive  depots.  I  certainly  would  not  have  approved  the  transfer  act,  had 
I  anticipated  this  improvident  course."  The  company  has  failed  to  pay  the 
interest  on  the  Planters'  Bank  bonds.     The  Bank  of  the  United  States  has 


*  sSNUes,  115. 

%  59  NUes,  219. 


t  58  Niles,i8i.  X  6  Howard,  Miss.,  626. 

I  9  Smedes  and  Marshall,  39C.    (184E). 


1 1 


THE  LIQUIDATION;  1842  TO  /5^5. 


381 


advanced  the  same,  and  has  presented  an  account  against  the  State  for 
$124,222.22,  and  demanded  payment  thereol  in  specie.  The  first  install- 
ment of  the  Planters'  Bank  bonds,  amounting  to  the  sum  of  $i2'i,ooo,  will 
be  due  next  July.  No  provision  has  been  made  for  its  payment.  One  of  the 
circuit  Judges  has  decided  that  recoveries  cannot  be  had  on  the  notes  belong- 
ing to  the  sinking  fund.  The  fund  is  especially  appropriated  to  the  payment 
of  the  two  first  installments  of  the  Planters"  Bank  bonds.  The  Mississippi 
Union  Bank,  hereafter,  will  be  totally  unable  to  pay  the  interest  on  the  five 
millions  of  State  bonds  issued  in  the  year  1838. 

The  state  of  things  at  this  point  of  time  was  this:  The  Planters'  Bank 
bonds  had  been  sold  originally  at  a  premium  amounting  to  $200,000,  which 
sum  had  been  invested  as  a  sinking  fund  for  the  same  bonds.  The  bank 
won  ten  per  cent,  per  annum  during  the  years  of  prosperity.  This  success 
of  the  enterprise  was  the  cause  of  the  extravagant  degree  to  which  the  State 
committed  itself  to  banking  in  1836  and  1837.  Then  the  State  ordered  the 
bank  to  transfer  this  capital  to  the  Mississippi  Railroad  Company.  The  latter 
never,  apparently,  used  its  railroad  enterprise  for  anything  else  than  to  get 
this  capital.  The  bank  paid  over  the  capital  by  scrip  which  became 
worthless,  but  which  had  nothing  to  do  with  the  bonds.  The  Railroad 
Company  had  become  responsible,  as  was  supposed,  for  the  bonds,  just  as 
the  bank  had  been  responsible  before,  it,  however,  had  served  its  purpose 
and  was  defunct.  As  to  the  Union  Bank  bonds,  the  Governor  speaks  of 
three  lots  of  them,  two  of  five  millions  and  one  of  five  and  a-half  millions, 
although,  under  the  amended  charter,  by  which  the  State  took  five  millions 
of  stock,  it  would  appear  that  there  should  never  have  been  but  ten  millions 
of  bonds.  The  first  five  millions  had  been  negotiated.  He  had  executed 
and  delivered  the  second  five  millions.  He  reported  with  pride  that,  by  his 
proclamation  of  March  2,  1840,  he  had  made  it  impossible  to  negotiate  them ; 
likewise  that  he  had  refused  to  execute  and  deliver  the  third  lot  of  five  mil- 
lions and  a-half. 

In  answer  to  the  Governor's  recommendation  of  repudiation,  the  Legis- 
lature resolved  that  the  State  was  bound  for  both  the  Planters  and  Union 
Bank  bonds,  and  that  the  insinuation  that  she  would  repudiate  them  was 
"a  calumny  upon  the  justice,  honor,  and  dignity  of  the  State.  * 

Some  of  the  Union  Bank  bonds  were  deposited  as  coll;'teral  for  the 
debentures  of  the  Bank  of  the  United  States.  The  interest  was  defaulted. 
May  I,  1841,  whereupon  Hope  &  Co.,  of  Amsterdam,  wrote  a  letter  of 
remonstrance  and  inquiry  to  Governor  McNutt.  In  his  reply  the  Governor 
complained  that  if  the  Union  Bank  had  to  bear  the  loss  by  the  credit  sale 
and  the  change  of  currency,  her  means  would  be, reduced  and  the  risk  of  the 
State  increased.  He  gave  five  reasons  why  the  State  would  not  pay.  The 
bonds  were  sold  on  credit;  they  were  made  payable  in  pounds  sterling  at 


I 


I 


(.,■ 


*  18  Banker's  Magazine,  p.  9;  ',  where  the  resolutions  are  quoted  in  full.     They  are  not  to  be  found  in  the  Session 
Laws  ;  perhaps  twcause  McNutt  did  not  sign  them. 


Ml     'I 


'M 


38a 


A  HISTORY  OF  BANKING. 


V 


iH  \-  :  ! 


four  shillings  iind  sixpence  to  the  dollar;*  the  contract  of  sale  was  fraudulent; 
the  purchase  by  the  Bank  of  the  United  States  was  in  violation  of  its  charter; 
the  bonds  were  sold  at  less  than  par.f  He  said  that  he  denounced  the  sale 
to  the  Legislature  as  illegal,  in  January,  1839.  He  declared  outright  "this 
State  never  will  pay  the  $s  millions  of  State  bonds  issued  in  June,  1838,  or 
any  portion  of  the  interest  due  or  to  become  due  thereon.  " 

"It  was  not  until  July,  1841,  that  the  doctrine  of  Repudiation  was 
announced  to  the  world — and  then  by  the  very  last  man  in  the  world  from 
whom  it  should  have  proceeded,  Governor  McNutt.  We  have  nowhere 
seen  it  advanced  that  even  a  minority  of  the  Legislature  of  1819  made  any 
movement  of  repudiation  which  might  at  least  have  served  as  a  notice  of 
intention."!  On  the  contrary,  that  Legislature  was  angry  with  McNutt  for 
his  animadversions  on  the  negotiation  of  the  bonds,  and  parsed  resolutions 
of  approval  of  that  negotiation. § 

Governor  McNutt  wrote  a  letter  to  the  "Richmond  Enquirer"  saying  that 
a  demand  would  probably  be  made  on  the  government  of  the  United  States 
for  payment.  "This  will  raise  an  exciting  and  perplexing  question.  The 
State  has  defined  her  position  and  will  maintain  it,  be  the  consequences 
what  they  may.  1  firmly  believe  four-fifths  of  the  people  of  the  State  prefer 
going  to  war  in  lieu  of  paying  the  bonds." 

The  repudiationists  won  a  great  triumph  at  the  November  election, 
1841.  They  had  two-thirds  in  each  House  of  the  Legislature.  The  imme- 
diate effect  was  that  all  State  stocks  fell.  At  the  opening  of  the  following 
session  of  the  Legislature,  Governor  McNutt  said  that  the  recent  election  was 
a  glorious  triumph,  it  had  "sustained  the  sacred  truth  that  the  toiling  mil- 
lion never  should  be  burdened  with  taxes  to  support  the  idle  few."  The 
State  had  lost  $302,988  by  the  notes  of  bankrupt  banks  which  it  had  taken. 
He  wound  up  his  message:  "The  banks  in  this  State  have  sunk  about 
$20  millions  in  relieving  the  financiers.  They  will  receive  their  last  relief 
in  the  bankrupt  act." 

At  the  session  of  1842.  the  Legislature  was  trying  to  undo  the  work  of 
1836-7.  February  28,  1842.  an  act  was  passed  to  provide  that  the  State 
should  take  over  the  assets  of  the  Mississippi  railroad  and  sell  them  at  auc- 
tion. Bonds  and  coupons  of  the  State  were  to  be  receivable  for  them.  The 
act  aimed  to  stop  the  sale,  by  the  railroad,  of  scrip  of  the  Planters'  Bank, 
which  had  been  issued  for  stock  of  the  State  in  that  bank,  and  had  been 
transferred  to  this  railroad  company  in  1839,  and  also  to  stop  the  sale  of  the 
same  by  persons  or  corporations  who  held  it  hypothecated. 

February  26th,  resolutions  were  adopted  with  respect  to  the  Union  Bank, 

*  The  bonds  issued  by  Louisiana  for  the  Citizens'  Bank  bore  on  their  face  an  alternative  denomination,  Cioo  or  (444.44. 

t  The  cashier  of  the  Union  Banlt  published  a  letter,  September  26,  1858,  in  which  he  stated  that  the  bonds  had  been 
negotiated  "for  five  millions  in  gold  and  silver."  (4  Banker's  Magazine,  339.)  This  was  a  prevarication  of  the  kind  which 
bank  officers  in  those  days  uttered  without  compunction.  The  Supreme  Court  of  Pennsylvania  held  that  "  par  "  of  post- 
notes  meant :  with  accrued  interest.     (10  Harris,  479.) 

i  Democratic  Review,  April,  i84i. 

$  8  Bankei's  Magazine,  493.    The  resolutions  are  not  in  the  Session  Laws,  perhaps  because  McNutt  did  not  sign  them. 


THE  UQL'IDATIOK:  1842  TO  184^. 


J83 


which  constituted  a  great  step  in  the  history  of  repudiation.  They  recited 
that  the  Legislature  had  no  authority  to  raise  money,  to  execute  a  law 
deemed  by  the  authors  of  these  resolutions  repuj,'nant  to  the  Constitution  of 
the  United  States  and  of  Mississippi;  that  the  supplementary  act  to  incorpo- 
rate the  Union  Bank  was  "a  fundamental  change  of  said  original  charter, 
passed  contrary  to  the  letter  and  spirit  of  the  Constitution  of  the  State,  and 
adopted  without  the  assent  of  her  citi/ens  as  required  thereby;"  that  the 
$s  millions  bonds  [the  first  lot  delivered  to  the  bank]  were  issued  without 
reference  to  the  people  or  compliance  by  the  bank  with  the  original  condi- 
tions of  the  charter,  and  "are  not  binding  on  her  [Mississippi's]  citizens, 
and  cannot  be  paid  by  this  State  while  the  form  of  its  Constitution  remains;" 
and  that  the  Governor  by  his  proclamation  shall  forbid  the  sale  or  hypothec 
cation  of  the  second  $s  millions  now  in  the  bank. 

The  subject  of  repudiation  had  now  attracted  the  attention  of  the  whole 
country  and  of  Congress.  There  were  groups  of  persons,  more  or  less 
numerous,  in  all  the  indebted  States,  who  were  in  favor  of  repudiation. 
Jacob  Thompson  of  Mississippi  made  a  speech  in  the  House,  January  10, 
1842,  in  which  he  not  only  defended  repudiation,  but  gloried  in  it,  as  a 
noble  and  righteous  defen.se  of  liberty  and  American  principles.  The  fol- 
lowing extract  from  the  report  of  a  committee  of  the  Mississippi  Legislature 
illustrates  the  tone  and  the  principles  on  which  repudiation  was  defended. 
The  committee  feel  that  the  people  of  Mississippi  have  taken  a  patriotic 
stand.  "They  are  not  controlled  by  selfish  or  mercenary  motives.  The 
low  and  grovelling  consideration  of  dollars  and  cents  has  nothing  to  do 
with  the  merits  of  this  question.  Their  honest  obligations  they  will  fulfill, 
should  they  have  to  divest  themselves  of  the  comforts  and  necessaries  of 
life  to  do  so.  Higher  and  holier  motives  than  mere  pecuniary  considera- 
tions actuate  them.  They  have  determined  that  they  never  will  submit  to 
an  invasion  of  their  Constitution  by  either  foreign  or  domestic  foes.  The 
rights  secured  to  them  under  that  sacred  instrument  thev  will  maintain  at 
all  hazards;  and  relying  on  the  correctness  of  their  principles  and  the  just- 
ness of  their  cause,  they  will,  with  confidence  and  cheerfulness,  submit  to 
the  verdict  of  posterity." 

No  doubt  the  attention  of  the  reader  has  already  been  drawn  to  the  mar- 
vellously lax  way  in  which  everybody  treated  the  bond  issues.  Other  cases 
of  the  same  thing  will  follow  below.  The  Governors  signed  bonds  and 
delivered  them  to  banks  or  improvement  companies  or  Fund  Commissioners, 
almost  without  accountability.  In  this  case,  McNutt  did  not  take  the  low- 
est precautions  before  issuing  the  bonds  to  see  that  the  interests  of  the  State 
were  guarded,  that  the  law  was  complied  with,  or  that  the  bank  had  ful- 
filled the  conditions.  Much  less  did  he  look  to  the  future  for  any  guarantees 
that  the  bank  would  perform  its  stipulations.  He  was  once  subjected  to 
interrogatories,  we  are  not  told  by  whom.  "For  what  purpose,  and  under 
what  authority,  did  you  sign  and  deliver  said  bonds?"  He  made 
irrelevant  replies,  and  cited  the  example  of  "Jefferson  and  the  illustrious 


il 


I  T 


\r 


1 


li 


u  . 


:   ?      H 


n 


■u\ 


H 


: 


384 


A  HISTORY  OF  HANKING. 


father  of  the  republican  party"  to  Justify  himself  in  siBnin^  the  act  for  th# 
Union   Bank  in   spite  of  his  opinion  that   it  was  unconstitutional,* 

The  bonds  being  thus  carelessly  signed  and  executed  by  the 
Governor,  in  any  one  of  the  debt-contracting  States,  were  generally 
thrown  into  the  hands  of  agents  who  undertook  costly  journeys  at  the 
expense  of  the  State,  exacted  and  gave  extravagant  commissions,  hypothe- 
cated the  bonds  for  a  fraction  of  their  value  with  bankers  who  failed  and 
involved  the  collateral  in  their  bankruptcy;  or  sold  them  to  be  paid  for  in 
installments,  delivering  the  whole  in  advance,  so  that  when  the  bankers 
failed,  as  a  great  many  of  them  did.  the  bonds  had  passed  out,  by  sale  or  as 
collateral,  into  the  hands  of  innocent  holders,  and  the  States  obtained  nothing 
for  them.  What  wonder  that  the  whole  system  was  a  carnival  of  waste, 
extravagance,  and  peculation,  and  that  all  persons  who  had  a  share  in  it 
behaved  in  the  loosest  and  most  irresponsible  inanner  with  respect  to  all 
stipulations,  guarantees,  and  duties  which  would  have  been  proper  under 
the  circumstances  ,^t 

In  184^  there  was  an  anti-repudiation  reaction, 

in  accordance  with  a  requirement  of  the  Constitution  an  act  was  passed, 
February  is.  1841,  to  give  any  one  who  had  a  claim  against  the  State  per- 
mission to  lile  a  bill  in  chancery  against  it.  and  diiecting  issues  to  be  made 
up  to  try  the  facts.  An  exemplified  record  of  any  finding  in  favor  of  the 
complainant  was  to  be  tiled  in  the  office  of  the  Secretary  of  State,  and  there- 
upon the  Governor  was  to  issue  his  mandate  to  the  Auditor  to  draw  his 
order  on  the  Treasurer  for  the  amount  so  decreed  to  be  paid  by  the  State. 
Governor  McNutt  declared  that  this  was  unconstitutional,  because  money 
could  be  drawn  from  the  treasury  only  in  consequence  of  an  appropriation 
made  by  law. 

Several  of  the  great  Mississippi  banks  were  still  indebted  to  the  United 
States  for  deposits.  Execution  against  the  Planters'  Bank  and  the  Agricul- 
tural Bank  was  stayed,  from  time  to  time,  until  March  4,  1841.  During  the 
summer  of  1842,  the  Congressmen  from  the  .State  were  trying  to  get  a  longer 
extension.  January  is,  1844,  the  Legislature  asked  the  District  Attor- 
ney of  the  United  States  to  postpone  the  sale  of  the  property  of  the  Planters' 
Bank  until  the  Legislature  could  take  action  to  discharge  the  judgment  in 
favor  of  the  United  States  against  that  bank. 

The  State  Treasury  of  Mississippi  was  in  great  straits  in  January,  1844. 


•  IS  Miss.,  6h. 

t  The  president  of  the  Banli  of  Missouri,  in  a  trip  to  the  East  in  iRsi,  discovered  in  the  Bank  of  America  bonds  of 
Missouri  fully  and  duly  executed,  to  the  amount  of  $215,000,  which  had  lain  there  since  18)7,  neither  the  State  nor  the  bank 
having  any  record  of  them.  (7  Banker's  Magazine,  ]14.)  There  was  a  discrepancy  in  the  bond  account  of  Indiana  which 
could  not  be  explained  until  a  box  of  bonds  "  intended  for  cancellation  "  was  found,  in  i8;3,  in  the  office  of  Wlnslow,  Lanier 
&  Co.  It  had  been  left  there  by  a  former  State  Treasurer  and  forgotten.  (8  Hankers  Maganinc,  436.)  The  agent  of  the 
State  of  Indiana  Issued,  in  186a,  $i.a  millions  of  State  bonds  fraudulently.  A  part  of  these  were  recovered,  but  about 
fo.s  million  remained  outstanding.  "  Pr»vious  to  March  11,  1850,  the  State  bonds  were  left  in  the  agent's  hands,  signed  by 
the  State  officers,  ready  for  Issuing,  and  needing  nothing  but  the  agent's  signature  to  make  them  valid."  The  law  passed  on 
that  date  was  intended  to  put  a  stop  to  this  loose  mode  of  business,  but  no  change  in  method  had  taken  place  In  pursuance  of 
It.    Hence  the  opportunity  remained  for  this  fraud.    (17  Bankers' Magazine,  p.  79.) 


THE  LIQUIDATION;  1S42  TO  iS^5- 


385 


The  Governor  said:  "lam  im.ilMe  to  stato  .icciiratcly  the  amount  of  the 
li  ibilitii's  of  thi-  Slato,  owin^  in  part  to  tiu-  lU-ranKi'd  condition  ot  the  hooks 
in  tl>e  oHici' or  the  State  TieasiiriT,  caused  by  ihe  ne^'lect,  delalcation,  and 
cnibe/zlenient  of  tlie  late  State  Treasurer,  and  to  the  tact  tli.it  no  account  has 
heretofore  been  kept  at  tlie  Treasurer's  office  of  the  State  bonds  issued  on 
account  o(  the  I'lanters'  Hank,  and  the  interest  accruing  thereon;  such 
account  h.ivin^  be-.n  kept  by  tlie  I'l, inters'  15. ink.  "  Tlu'  IM.inters'  H,ink  h.id 
made  an  assiKinnent.  The  Governor  feared  that  the  State's  interest  would 
be  lost  if  tile  b,iiik  was  liquid. ited  in  th.it  w.iy.  lie  also  w.is  very  sure  that 
the  Mississippi. ins  proved  their  iiij^li  noi>ility  by  repudiating  tlie  Union  H.ink 
bonds;  but  as  to  the  Planters'  Bank  bonds,  the  preservation  of  a  high  moral 
principle  called  on  tlie  St.ite  to  pay  them  at  every  sacrilice,  and  it  would  do  it. 

Febru.iry  2^^,  the  Planters'  Bank  and  the  Mississippi  R.iilroad  were  put 
in  liquid. ition  by  act  of  the  l.e^^islature.  All  sums  which  slu)uld  be  realized, 
after  the  circulation  and  certilicates  of  specie  deposit  should  be  paid,  were  to 
be  applied  to  pay  the  State  bonds.  If  the  banks  did  not  surrender  voluntarily, 
the  Attorney-general  w.is  to  lile  a  bill  in  ch.mcery.  Proceedings  h.id  alie.idy 
been  begun  against  the  PI. inters'  Bank  under  the  law  of  184?.  That  institution 
refused  to  submit  to  the  law  of  I.S44,  whereupon  the  proceedings  under  the 
act  of  iN.ji  were  completed  and  were  held  valid  by  the  Supreme  (Aiurt  in 
184(1.*  The  act  for  winding  up  these  banks  was  amended  by  providing 
that  the  creditors  of  them  should  get  nothing  until  the  seminary  fund,  the 
sinking  fund,  and  the  literary  fund  shouUI  be  restored.  l)ebtors  of  the  banks 
might  redeem  their  securities  from  the  .issignee  or  holdei'  within  two  years, 
by  paying  twelve  and  a-half  per  cent,  per  annum  and  costs. 

We  learn  from  the  Governor's  message  ot  1.S48  that  the  will  and  purpose 
to  repudiate  the  Planters'  Bank  bonds  h.ui  then  become  well-developed,  and 
we  learn  the  ground  for  it  which  was  then  alleged.  It  was  that,  in  the 
charter  of  the  old  Bank  of  Mississippi,  it  had  been  promised  that  no  other 
bank  should  be  charted  until  the  charter  of  that  bank  should  expire.f  In 
violation  of  this  stipulation,  the  Planters'  Bank  had  been  founded.  The 
Governor  said  that  the  Bank  of  Mississippi  had  compounded  this  wrong  to 
itself  in  1830.  He  argued  against  repudiation,  and  proposed  that  the 
income  from  State  lands  should  be  set  aside  to  pay  these  bonds.  Such  a 
law  was  passed.  At  an  informal  meeting  of  members  of  the  Legislature 
a  large  majority  were  in  favor  of  paying  the  Planters'  Bank  bonds. | 

In  a  case  which  was  decided  by  the  Supreme  Court  in  i8s2,  it  was 
explained  that  the  State  never  took  any  stock  or  issued  any  bonds  under  the 
original  charter  of  the  Planters'  Bank.  By  the  supplementary  act  of 
December  16,  1830,  the  Governor  was  to  subscribe  for  stock  and  issue  bonds 
for  a  loan;  in  1833,  the  amount  was  increased.  There  was  nothing  behind 
these  bonds  but  the  pledge  of  the  faith  of  the  State.  The  sinking  fund 
which  was  to  be  formed  was  pledged  by  the  first  charter,  but  not  by  the 


•  0  Smedes  and  Marshall,  6i8. 
2? 


t  See  pages  Oo- 1 ,  249. 


X  i  Banker's  Magazine,  sb8. 


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supplementary  one,  and  it  might  have  been  appropriated  to  any  purpose. 
No  interest  was  paid  after  1840.  The  first  bonds  which  bore  coupons  fell 
due  March  1,  1841 ;  but  $300,000  of  bonds  had  been  issued  earlier,  which 
bore  no  coupons,  only  a  stipulation  of  interest  on  their  face.  An  act  was 
passed  March  4,  1848,  which  appropriated  the  sinking  fund  to  coupons* 

A  payment  of  interest  on  Planters'  Bank  bonds  was  made  in  January, 
i8i9,  to  the  amount  of  §101,500.  It  appears  that  some  holders  of  coupons 
found  out  that  just  that  sum  was  in  the  sinking  fund  available  under  the  law, 
as  interpreted  in  this  decision.  They  applied  for  it  and  the  Attorney-general 
advised  the  Auditor  that  the  claim  should  be  complied  with.f  The  only 
other  payment  of  the  same  kind  that  was  ever  made  was  $io,  later  in  the 
same  year.  J 

An  act  was  passed  March  16,  .Ss2,  that  at  the  following  presidential 
election,  a  vote  should  be  taken,  yes  or  no,  on  the  question:  "Will  you 
submit  to  a  direct  tax  for  the  payment  of  the  Planters"  Bank  bonds  issued  by 
this  State,  on  account  of  the  Planters'  Bank  of  the  State  of  Mississippi.^" 
The  law  provided  that  unless  a  majority  of  all  the  votes  on  this  question,  at 
the  presidential  election,  should  be  "No,"  it  should  be  an  instruction  to  the 
Legislature  to  provide  for  the  payment  of  the  bonds.  The  affirmative  vote 
was  12,701;  the  negative,  24,487;  the  non-voting,  counted  as  affirmative, 
7,234;  making  the  majority  against  the  special  tax,  4,sso.§ 

In  Campell  versus  the  Union  Bank  it  was  held  that  the  supplementary 
charter  of  that  bank  only  modified  and  extended  the  original  one  and  that  it 
did  not  essentially  alter  it.  Under  the  above  mentioned  law  of  1843,  suit 
having  been  brought  on  a  bond,  the  Chancellor  decided  that  "the  bond  sued 
on  was  a  legal  and  valid  obligation  against  the  State,  and  had  not  been 
issued  in  violation  of  the  law  and  Constitution,  and  he  rendered  a  final  decree 
against  the  State  for  the  principal  and  interest  of  the  bond."||  On  appeal  the 
Supreme  Court  decided,  in  i8s3,*  that  no  provision  of  the  supplementary 
charter  attempted  directly  to  pledge  the  faith  of  the  State  in  violation  of  the 
State  Constitution.  The  State  was  not  a  debtor  to  the  corporation  for  the 
bonds  which  never  were  delivered  to  it.  The  Legislature  has  power  to  sub- 
scribe to  the  capital  of  banks.  The  requirement  of  a  repeated  vote  at  a 
second  session  does  not  apply  to  that  power;  neither  did  !he  Constitution 
ever  mean  to  give  an  appeal  to  the  people  or  a  right  of  veto  in  the  people  on 
acts  of  the  Legislature  for  borrowing  money.  A  double  voted  law  has  no 
extra  sanctity.  It  can  be  repealed  before  rights  vest  under  it.  ' '  The  supple- 
mentary charter  of  the  bank  did  not  authorize  the  issuance  of  State  bonds 
by  which  a  debt  could  be  imposed  upon  the  State,  and  no  attempt  was 
made  by  that  act  to  pledge  the  faith  of  the  State  for  the  payment  of  a  loan 
or  debt;  nor  did  it  attempt  a  renewal  of  the  pledge  contained  in  the  original 
charter  of  the  bank."    The  supplementary  act  was  not  void  for  lack  of  a 


*  n  Mississippi,  471.     (1852.) 

S  7  Banker  5  Magazine,  499. 


t  n  Manker's  Magazine,  7Z0.  J  14  Bankers  Magazine,  509. 

;  J5  Miss.,  037  •  .Mississippi  ivr.iMS  Johnson,  25  Miss.,  025. 


•1  J 

t'  '1 


THE  LIQUIDA  TION ;  1842  TO  1845. 


387 


double  vote;  it  did  not  change  the  original  charter  as  to  the  guarantees 
against  loss  which  were  given  to  the  State.  The  decision  of  the  directors 
of  the  bank  that  the  stock  was  sufficiently  secured  by  the  mortgages  which 
were  given  for  it  is  binding  on  the  State.  The  sale  of  the  bonds  does  not 
appear  to  have  been  below  par;  that  sale  was  neither  illegal  nor  void.  The 
conversion  of  dollars  into  sterling,  at  four  shillings  and  sixpence,  does  not 
avoid  the  sales. 

Thus  the  Courts  of  Mississippi  overthrew  every  argument  whicii  had  ever 
been  put  forward  in  defense  and  support  of  repudiation.  The  allegations  of 
fact  were  treated  as  trivial  or  irrelevant,  and  the  constructions  of  law  as 
unsound  and  sophistical. 

The  income  from  lands  which  had  been  set  off  in  1848,  as  a  revenue 
with  which  to  pay  the  interest  on  the  Planters'  Bank  bonds,  was  expended 
for  railroads.*  The  Governor  urged  payment.  'The  question  for  your 
solution  is:  Are  those  bonds  due  and  unpaid.^" 

The  subject  of  those  bonds  was  brought  before  the  Legislature  again  in 
i860.  A  majority  of  the  Committee  to  whom  it  was  referred  reported  that 
political  affairs  were  so  threatening  that  it  was  no  time  to  take  up  that 
matter.  The  minority  urged  payment,  and  replied  to  the  majoritv  that 
Mississippi,  if  she  proposed  to  resume  her  sovereignty,  needed  just  then 
most  of  all  to  establish  her  credit,  f 

A  constitutional  amendment  was  adopted  in  1S7S:  "Nor  shall  the  State 
asrume,  redeem,  secure,  or  pay  any  indebtedness  or  pretended  indebtedness 
claimed  to  be  due  by  the  State  of  Mississippi  to  any  person,  association,  or 
corporation  whatsoever,  claiming  the  same  as  owners,  holders,  or  assignees, 
of  any  bond  or  bonds  now  generally  known  as  Union  Bank  bonds  or 
Planters'  Bank  bonds." 

It  is  a  case  of  the  irony  of  history  that  the  Mississippians  were  warned 
that  repudiation  would  cost  their  State  its  credit  and  make  it  impossible  for 
them  to  borrow.  Phis  happened,  but  the  only  case  where  the  State  after- 
wards tried  to  borrow  was  in  the  carpet-bag  days,  and  its  bad  credit  made 
it  impossible  for  the  carpet-baggers  to  load  it  up  with  debts,  as  they  did  the 
other  States. 

The  Governor  of  Louisiana,  in  his  message  of  January,  i84:>,  had  reached 
the  point  of  boldly  declaring  that  the  notion  was  false,  that  the  banks  of  one 
cit"  must  suspend  because  those  of  another  did  so.  He  showed  that  from 
November  2,  \b}Q,  to  October  2,  1S41,  the  New  Orleans  banks  reduced  their 
cash  assets  S'?oo,ooo.  and  increased  their  liabilities  §780,000,  and  he  insisted 
that  they  would  continue  in  this  course  so  long  as  the  suspension  lasted.  J: 
It  was  enacted  January  24th.  that  no  bank  note  should  be  issued  which  was 
not  payable  in  specie. 

The  most  remarkable  law  to  regulate  banks,  which  was  produced  in  this 
period,  in  any  State,   was  the  act  of  February  s.    1842.     It  is  drawn  in 


*  Oovernor's  Message,  iSiq. 


*  14  IJanker'i  Mjgazine,  80t. 


X  Compare  pact's  177  .inJ  380. 


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reni;irk;ib!y  dear  and  direct  language,  entirely  free  from  legal  verbiage.  It 
leaves  the  impression  of  a  schoolm.ister  vvlio,  having  got  tired  of  confusion, 
insubordination,  and  misbehavior,  takes  in  hand  the  duty  of  restoring 
order,  and  distributes  punishments,  corrections,  and  new  orders  in  the  most 
peremptory  manner.  All  charters  were  revived  provided  the  banks  would 
prepare  at  once  to  resume,  and  would  obey  the  rules  here  laid  down.  The 
loans  on  capital  were  to  be  distinguished  and  separated  from  the  loans  on 
deposits;  the  former  were  to  be  on  mortgage  and  long;  the  latter  on  ninety- 
day  commercial  paper.  The  loans  on  c.ipital  were  designated  "dead  weight;" 
the  loans  on  deposits  were  called  "movement  of  banks."  No  bank  was  to 
increase  the  dead  weight  while  its  whole  cash  liabilities  were  not  covered  by 
one-third  specie  and  two-thirds  ninety-day  paper.  If  any  one  applied  for  an 
extension,  his  account  was  to  be  closed  and  the  other  banks  were  to  be 
informed.  Any  one  whose  paper  lay  prote^Ued  ten  days  was  to  be  discredited, 
and  the  banks  informed,  and  he  to  have  no  bank  credit  until  he  should  pay 
in  full.  The  Governor  was  to  appoint  annually  a  Board  of  Currency  of  three 
persons,  each  to  have  a  salary  of  $4,000  per  annum,  to  supervise  banks,  and 
to  get  from  each  a  weekly  statement  in  detail.  The  one  on  the  last  Saturd.iy 
of  each  month  was  to  be  published,  in  order  to  inform  the  stockholders  of 
the  real  situation  of  each  bank.  A  full  report  was  to  be  made  annually  to  the 
Legislature.  Fach  member  of  the  Board  of  Currency  was  to  file  a  bond  for 
$T.oc)0,  on  which  he  might  be  sued  for  failure  to  do  his  duty.  All  existing 
debts  were  to  be  regarded  as  dead  weight,  and  payment  of  fifteen  per  cent, 
per  annum  was  to  be  reouired  with  good  security  at  eight  per  cent.,  and  no 
bank  credit  w.is  to  be  given  until  full  payment  was  made.  Banks  might 
issue  post-notes  pay.ible  September  }o,  184:2.  for  twice  the  specie  they 
possessed,  but  with  State  bonds  or  mortgages  for  the  uncovered  half. 
All  such  post-notes  were  to  be  stamped  and  recorded  by  the  Board  of 
Currency.  All  banks  in  lic^uidation  were  freed  from  the  obligation  to  pay 
any  bonus  or  to  carry  out  improvements,  except  the  banks  in  which  the 
State  was  a  stockholder.  Banks  like  the  Gas  Light  Company,  which  had 
executed  works,  might  hold  them  for  a  set  term; — for  the  Gas  Company, 
forty  years.  All  the  banks  in  liquidation  were  to  report  to  the  Board  of 
Currencv,  and  non-liquidating  banks  were  to  take  the  notes  of  liquidating 
banks;  this  circulation  to  be  distributed  amongst  the  former  in  proportion  to 
their  circulation,  which,  for  this  purpose,  is  assumed  to  be  so  much,  a  list  of 
the  banks  and  tiieir  circulation  being  inserted  in  the  act.  The  solvent  banks 
were  to  be  secured  in  taking  this  currency  by  the  assets  of  the  liquidating 
banks,  with  interest  at  eight  per  cent.  The  whole  operation  was  to  be 
regulated  by  the  Board  of  Currency,  and  all  the  currency  of  the  liquidating 
b.mks  was  to  be  canceled  as  it  was  taken  in.  Every  bank  was  to  state, 
within  twenty-five  days,  whether  it  accepted  this  law  or  not;  and  any 
revived  bank  which  did  not  comply  with  it  was  to  be  put  in  liquidation  by 
the  Board  of  Currency.  A  fine  of  Ssoo  was  to  be  imposed  on  any  bank 
official  who  violated  the  orders  of  the  Board  of  Currency.     After  thirty  days 


%l '     ' 


i-Mmtmt^iSKtA'im-l. 


I  iV 


THE  LIQUIDATION :  1S42  TO  184-^. 


i8q 


each  bank  was  to  issue  its  own  notes  onlv,  and  all  weiv  to  .nake  weekly 
settlements.  The  Governor  might  issue  bonds  at  five  per  cent,  for  lil'teen 
years  to  pay  the  debt  of  the  State  to  the  banks.  The  lowest  note  was  to  be 
for  $=.;  no  dividends  might  be  paid  during  suspension:  no  i^uik  might  have 
less  than  fifty  separate  shareholders  after  September  w;  ail  were  declared 
liable  to  examination  by  the  Legislature:  no  bank  might  buv  its  own  stock 
or  loan  over  thirty  per  cent,  on  that  stock  when  it  was  below  par;  banks 
were  forbidden  to  deal  in  sugar,  cotton,  or  other  commodities.  Heavy  pen- 
alties were  provided  for  a  breach  of  each  detail  in  this  act. 

Perhaps  this  law  grew  out  of  one  which  was  prepared  by  a  bank 
committee  in  1S40,*  but  it  seems  to  be,  in  the  form  in  which  it  was  enacted, 
the  product  of  one  mind.  It  obviously  proceeded  from  very  ma*'ire  study 
of  the  principles  and  practice  of  banking,  and  may  justly  be  regarded  as  one 
of  the  most  ingenious  and  intelligent  acts  in  the  history  of  legislation  about 
banking.  Probably  it  could  not  have  been  passed  except  at  just  such  a 
crisis  in  banking  affairs,  it  remained  unmodified  only  thirty  days:  then 
another  act  was  passed  modifying  and  softening  it  in  many  det.iils.  The 
administrative  officers  also  tlinched  from  the  execution  of  it  in  all  its  severity, 
but,  even  so,  it  put  the  banking  of  Louisiana  on  a  plane  far  above  that  of  any 
other  Stale  and  held  it  there  until  the  civil  war.  The  separation  of  the 
"Deadweight"  and  the  "Movement"  betrays  the  same  view  of  banking 
noticed  above,t  although  the  bank-note  issue  was  here  connected  with  the 
active  operations  and  not  with  the  passive  investment. 

March  1  ith,  the  banks  protested  against  vexatious  suits,  and  another  law 
was  passed  providing  for  both  voluntary  and  involuntary  liquidation.  Tiie 
immediaie  elTect  of  the  law  was  that  five  of  the  worst  banks  failed  at  once, 
and  proceedings  were  commenced  against  Uvv  others.  March  14th.  proceed- 
ings against  the  Union  Bank  were  suspended,  and  leave  was  given  to  hold  a 
stockholders'  meeting  in  order  to  decide  whether  to  accept  the  act  reviving 
the  banks,  and  time  was  given  for  this  purpose.  The  purchaser  oi'  the 
Merchants'  Bank  from  the  Bank  of  the  United  States. J  who  was  also  the 
president  of  the  Kxchange  Bank,  appears  to  have  brought  it  to  ruin:  for  both 
of  those  banks  failed  and  he  absconded  as  a  defuiiter. 

The  New  Orleans  b.mks  resumed  May  18,  1842.  There  was  a  great  run 
upon  them  and  almost  a  riot.  By  the  2d  of  June  all  but  three  of  them  had 
suspended.  Only  one  of  these,  the  Bank  of  Louisiana,  had  any  notes  out. 
The  report  was:  "The  monetary  condition  of  the  citv  is  deplorable  bevond 
description."  The  city  notes  wereatthirtvandlhirty-tive  percent,  discount.  § 
During  the  summer,  the  sacrifices  of  property  were  reported  as  terrible.  In 
September  "there  was  a  bank  revulsion  at  New  Orleans,  the  most  severe 
probably  that  was  ever  felt.  Its  efTects  extended  throughout  the  Union." 
Sterling  exchange  was  at  twelve  and  thirteen  discount.!     Probably  this  great 


*  Treasury  Report,  March  1.  1841.  p.  6+4. 
S  02  Niles,  iili,  510. 


+  Sie  p;i.;e  \\l.  X  See  pJRe  lOl. 

E  Treasury  Kepon,  August  10,  1840.  p.  8^^. 


ill 


it 

.f. 

1 

1      1   ' 

*'. 


m 


»! 


4 
'111 

1  ■ 


1    ■ 

HI:, 

i. 

390 


^  HISTORY  OF  BANKING. 


revulsion  in  September  was  due  to  the  provision,  in  the  law  for  reviving  the 
banks,  that  the  post-notes  must  be  retired  at  that  time.  The  remark  was 
quoted  of  some  participant  in  these  vicissitudes:  "We  then  touched  bottom 
and  we  staid  at  the  bottom  until  May,  1843." 

An  act  to  liquidate  the  property  banks,  April  s,  1843,  provided  that  any 
stockholder  might  clear  his  liability  by  paying  in  the  bonds  of  the  State  issued 
to  the  bank.  The  assets  of  the  Consolidated  Association  and  the  Citizens' 
Bank  were  to  be  held  by  the  State  until  they  should  pay  the  State  bonds 
issued  to  them.  Future  crops  of  the  stockholders  might  be  mortgaged  to 
the  banks,  property  might  be  surrendered  to  them  on  appraisal,  and  the 
banks  might  buy  in  mortgaged  property.  The  Governor  was  to  appoint 
manag'jrs  for  each.  The  Board  of  Currency  reported,  in  184,,  that  the  Union 
Bank  had  punctually  paid  its  semi-annual  interest  coupons,  and  the  lirst  ot 
the  series  of  bonds  due  in  November,  1S44,  amounting  to  $1, 7^0,000,  and 
that  ten  banks  were  in  liquidation,  including  the  Citizens'  and  the  Consoli- 
dated Association. 

The  Union  Bank  escaped  the  fate  of  all  the  other  banks  of  the  same  class. 
Either  it  was  more  bank  than  loan  office  or  its  loans  were  predominantly  on 
city  real  estate.  It  continued  as  one  of  the  leading  banks  of  New  Orleans. 
The  Consolidated  Association  was  liquidated  and  wound  up.  In  1S49,  having 
paid  up  a  part  of  the  State  bonds  issued  for  it,  it  extended  the  rest,  amount- 
ing to  $1,376,000,  giving  bonds  of  the  bank  payable  at  different  dates  down 
to  1866.  The  cashier  says:  "We  are  now  happy  to  say  that  the  honor  of 
the  State  has  been  relieved  so  far  as  this  bank  is  concerned." 

The  Citizens'  Bank  remained  in  liquidation  ten  years.  It  was  then 
resuscitated  and  will  be  heard  of  again  below. 

Of  the  bonds  issued  for  banks,  there  were  outstanding,  in  1843,  half  of 
the  $2.4  millions  issued  in  1824  for  the  Bank  of  Louisiana;  $2  millions  for 
the  Consolidated  Association;  $7  millions  for  the  Union  Bank;  $7.1  millions 
for  the  Citizens'  Bank.* 

In  the  message  of  the  Governor,  1843,  it  was  stated  that  the  expendi- 
tures of  the  State  exceeded  the  revenue  by  more  than  $200,000;  "that 
there  is  nothing  in  our  exhausted  treasury;  that  the  State  can  no  longer  bor- 
row a  dollar  from  her  own  banks;  and  that  the  people  are  taxed  as  heavily 
as  they  can  bear." 

The  Secretary  of  State  and  the  State  Treasurer  were  constituted  the 
Board  of  Currency,  April  6,  1843;  to  have  only  $1,200  salary  each.  Vari- 
ous measures  were  taken,  March  10,  184s,  to  assist  in  the  liquidation,  and 
it  was  provided  that  receivers  should  take  charge  of  all  the  assets  of  the  two 
great  property  banks,  in  order  to  provide  for  the  payment  of  the  State  bonds 
issued  to  them. 

In  1846,  the  Governor  was  able  to  say  that  the  State  and  city  were 
"blessed  with  a  sound   constitutional    currency,    amply  adequate   to   all 


•  Johnson's  Report  on  Assumption. 


««>!«5M«EaE*S?''' 


THE  LIQUIDATION:  1842  TO  184^. 


'C)I 


domestic  or  commercial  purposes."  He  had  cancelled  $3.5  millions  bonds 
which  had  been  liquidated  under  the  act  of  March  :2s.  1S44,  and  the  Bank  of 
Louisiana  and  Mechanics  and  Traders'  Bank  had  retired  part  of  the  bonds 
issued  on  their  account,  and  were  expected  to  retire  more. 

December  20,  1848,  it  was  enacted  that  the  stockholders  of  the  Consoli- 
dated Association  must  pay  their  dues  to  it  in  specie,  or  by  the  delivery  of 
State  bonds,  and  that  company  was  allowed  to  test  in  the  court  the  liability 
of  the  State  as  a  stockholder  to  share  in  the  losses.  In  the  case  which  was 
made  up  under  this  provision,*  it  was  held  that  the  State  was  not  liable  for 
the  losses  of  the  bank,  by  virtue  of  the  shares  which  it  possessed,  because 
they  were  given  as  a  bonus  and  would  not  be  such  if  they  carried  a  liability. 
The  counsel  for  the  bank  in  arguing  this  case  (i8so)  said  that  Louisiana  had, 
within  a  few  years,  made  $1  million  from  her  banks.  Shall  she  evade  a 
loss  of  one-sixth  of  that  amount  in  "the  only  institution  which  has  been 
unfortunate  ?" 

There  is  no  more  eloquent  commentary  on  the  banking  history  of  these 
States  than  the  provisions  about  banking  which  they  put  in  their  Consti- 
tutions at  the  next  subsequent  revision.  The  Constitution  of  184s  forbade 
the  Legislature  to  pledge  the  credit  of  the  State  to  anybody,  and  prohibited 
the  creation  of  corporations  with  banking  or  discounting  privileges. 

Arkansas. — The  Legislature  ordered,  December  22,  1840,  that  the  banks 
should  resume  with  those  of  Louisian.i,  Tennessee,  and  Alabama,  "and 
shall  not  again  suspend  on  any  consideration  whatever."  At  the  same  time 
they  passed  an  appraisement  law  requiring  two-thirds  of  the  valuation  or  a 
stay  of  a  year.  In  July,  1841,  tweniy  men  in  Phillips  County  kidnapped 
the  Judge  before  whom  many  executions  were  returnable  so  that  he  might 
not  do  his  duty.  The  Real  Estate  Bank  ai  Hcl'^na  and  the  branch  of  the 
State  bank  at  the  Post  having  brought  a  great  number  of  suits  in  that  Court, 
the  Judge  was  petitioned  not  to  hold  court.  He  insisted  on  doing  his  duty. 
Armed  men  took  possession  of  the  Court  House  and  threatened  to  kill  the 
Sheriff  if  he  forced  his  way  in.     He  desisted  and  the  Judge  was  kidnapped. f 

A  Committee  which  was  appointed  in  1841  to  examine  the  Bank  of  the 
State  reported  that  they  found  at  the  Post  of  Arkansas  a  banking  house 
which  was  one  of  the  linest  buildings  in  the  State,  but  that  the  debts  could 
not  be  collected,  and  that  the  banks  could  do  no  business  for  five  years  to 
come,  except  trying  to  recover  the  capital.  They  reported  that  at  Fayette- 
ville  the  books  had  disappeared,  "alleged  to  have  been  stolen  from  the  bank 
a  few  days  before  our  examination  commenced."  The  books  had  been 
found  and  were  still  legible,  except  that  the  cash  book  had  been  mutilated 
by  cutting  out  all  the  pages  which  contained  entries.  The  cashier,  when 
interrogated,  declared  that  he  had  made  a  false  return  of  the  specie,  lest  the 
fact  should  appear  that  the  bank  was  in  straitened  circumstances.  He  was 
himself  a  defaulter. 


'  ^  Louijiar.j,  44. 


t  Guugc  ;  Jourrul  of  Banking,  26. 


I 


ii 


III 


-I 


t  lfl 


w 


''f  ' 
■i 


'k\ 


lO^ 


A  HISTORY  OF  BANKING. 


A 


I       H 


s-  Hi 


The  Central  Board  of  the  Real  Estate  Bank  passed  resolutions,  April  i, 
1842,  to  assign  and  liquidate,  appointing  trustees.*  A  majority  of  the  direc- 
tors at  Little  Rock  seized  and  held  the  papers  and  property,  refusinLr  to 
deliver  them  to  the  trustees.  After  soine  litigation,  the  Supreme  Cdurt 
maintained  the  assignment.  The  assignees  were  a  majority  of  the  Central 
Board.  At  first  view  it  seems  that  the  effect  of  this  assignment  was  to  save 
the  wreck  of  the  bank  from  being  sacrificed  by  politics  and  jobbery,  but  the 
result  was  that  the  affairs  of  the  bank  were  enclosed  in  secrecy  and  mystery. 
The  assets  at  the  time  of  the  assignment  were  put  at  $2,404,966  and  the 
liabilities,  at  $2,230,986. 

Commenting  on  this  assignment,  the  Governor  said,  in  1844:  "The  his- 
tory of  the  bank  already  presents  the  most  extraordinaiy  picture  ever  exhib- 
ited to  a  free  people.  In  the  first  place  a  public  corporation  is  created  by 
the  solemn  act  of  the  legislative  department  of  the  government,  involving 
the  rights  and  privileges  of  individuals  as  well  as  the  State.  In  the  next 
place  the  act  of  incorporation  giving  existence  to  the  bank  is  destroyed  by 
an  ex-partc  operation  of  a  few  individuals,  by  which  a  deed  of  assignment 
was  made  to  a  few  men,  denominated  residuary  trustees,  whereby  the 
assets  of  the  bank,  of  every  description,  were  transferred  into  the  hands  of 
said  residuary  trustees  and  their  officers.  From  that  period  the  operation 
and  management  of  the  bank  has  been  involved  in  profound  mystery." 

The  Legislature  passed  an  act  for  liquidating  the  bank,  January  31,  1843, 
but  it  never  superseded  the  assignment.  On  the  same  day  they  put  the 
Bank  of  the  State  in  liquidation,  ordering  that  the  gold  and  silver  which  it 
possessed  should  be  paid  out  pro  rata  to  the  whole  circulation,  the  amount 
paid  on  each  note  being  stamped  on  it  in  red  ink.  The  par  funds,  after 
paying  the  circulation,  were  to  go  to  the  interest  on  the  State  bonds.  The 
arrangement  about  paying  on  the  notes  was  repealed  February  3d,  and  it 
was  enacted  that  other  notes  should  be  given  for  the  difference,  which 
should  be  stamped  "re-issued."  The  notes  at  this  time  were  at  thirty-three 
cents  on  $1. 

The  State  sued  out  a  quo  warranto,  in  order  to  take  into  its  hands  the 
franchises  of  the  Real  Estate  Bank.f  It  was  held  that  the  assignment  was  a 
forfeiture,  and  that  the  "corporate  existence  of  the  Real  Estate  Bank 
ceased." 

The  Legislature  ordered,  February  i,  1843,  that  out  of  any  specie  in  the 
Bank  of  the  State,  $is,ooo  should  be  set  over  to  the  State  as  a  reimburse- 
ment of  the  federal  surplus  revenue,  and  that  this  sum  should  be  used  to 
pay  the  members  of  the  Legislature. 

The  Governor  believed,  in  1844,  that  under  the  management  of  active 
and  judicious  receivers,  at  least  one-half  of  the  debts  to  the  Bank  of  the 
State  might  be  collected  at  some  of  the  branches,  and  at  others  even  more. 
He  commented  on  the  banking  system  as  follows:  "The  pursuits  of  our 


*  4  Pike,  304.    (1841.) 


t  5  Pil<«.  595-     ("843) 


THE  UQU/DATJON;  1842  TO  184^. 


5Q3 


people  and  the  condition  of  our  country,  just  emerging  from  the  wilderness, 
did  not  then  and  do  not  now  justify  the  use  of  banking  facilities,  if  at  all,  to 
the  extent  provided,  and  of  which  we  availed  ourselves,  as  it  seemed,  in  a 
spirit  of  emulation  of  the  extravagance  of  other  States,  rather  than  in  accord- 
ance with  our  real  wants  and  substantial  means.  *  *  *  p^vv,  1  appre- 
hend, have  ever  been  able  to  realize  any  profits  from  their  so-called  accom- 
modation, while  almost  every  one  has  a  loss  to  regret." 

At  the  session  of  1844-s,  the  Legislature  ordered  that  the  receiver  of  the 
State  Bank  should  pay  to  the  State  treasury  all  the  par  funds  which  he  then 
had,  or  should  afterwards  receive;  and  that  they  should  be  used  first  in  the 
payment  of  the  Legislature.  All  liabilities  of  the  State  contracted  before 
October  ist,  were  to  be  paid  in  the  old  bank  notes,  which  were  then  at  fifty 
cents  on  the  $1;  but  they  were  no  longer  to  be  received  for  taxes,  and 
State  obligations  incurred  after  the  date  mentioned  were  to  be  paid  with 
treasury  warrants,  bearing  no  interest  but  receivable  by  the  treasury  and 
the  State  Bank.  It  was  also  enacted  that  all  the  funds  of  the  State  which 
had  been  placed  in  the  bank  should  be  regarded,  not  as  a  part  of  its  capital, 
but  as  a  deposit  by  the  State.  "The  truth  is,  the  State  mainly  lived  on  the 
means  of  the  bank  from  its  commencement  and  as  long  as  it  had  a  dollar."* 

At  the  session  of  184S-9,  the  Committee  on  Banks  reported  that  the 
State  Bank  had  lost  a  large  part  of  its  assets  for  lack  of  means  to  defend  its 
interests,  and  that  this  was  owing  chiefly  to  the  action  of  the  Legislature  in 
1842  and  1844,  in  taking  out  its  par  funds  with  which  to  pay  themselves. 
In  a  great  number  of  suits,  the  bank  was  non-suited  because  it  could  not 
give  security  for  the  costs. 

The  act  of  January  10,  1843,  enacted  that  after  March  4th  nothing  but 
par  funds  should  be  received  by  the  State  for  dues  to  itself.  There  were 
still,  in  the  following  year.  $133,862  of  notes  of  the  Bank  of  the  State  out- 
standing. This  law  led  to  long  litigation.  It  was  sustained  in  the  State 
Court,  but  not  in  the  Supreme  Court  of  the  United  States. f  A  question  also 
arose  on  the  validity  of  the  repeal  of  the  charter,  and  on  the  power  of  the 
State  to  take  possession  of  the  assets.  The  State  Court  sustained  the  power 
of  the  State  to  dispose  of  the  franchises  and  assets  of  the  bank  to  the  fullest 
extent,  so  that,  taken  in  connection  with  Briscoe's  case,  if  the  doctrine  had 
been  established,  it  would  have  enabled  the  State  to  act  with  completely 
arbitrary  power  in  the  creation  of  paper  money  banks,  without  responsi- 
bility.J  The  Court  said,  in  fact,  that  the  creditor,  in  such  a  case,  was  left 
"in  a  condition  in  which  his  rights  live  but  in  grace,  and  his  remedies  in 
entreaty  only."  Before  the  case  came  to  the  Supreme  Court  of  the  United 
States,  the  Legislature  had  further  taken  specie  and  par  funds  from  the  bank 
and  replaced  them  by  credits  subject  to  appropriation ;  had  vested  in  the 
State  the  title  to  land  taken  by  the  bank  for  debt;  and  had  required  the  bank 
to  accept  in  payment  bonds  of  the  State  issued  to  other  corporations.     The 


*  Committee  on  Banks,  1846. 


+  po  How.ird,  190,  218.     (1850,) 


*  12  Ark.insas,  321.    (18^1.) 


1 


-    ll 


i'    I 


fit! 


I 


r 


1  « 


1 

!1 


i/jsl 


\  I 


, 


Wi^  1 


M:':     \ 


.^! 


'|^.:;;| 


3Q4 


//  HISTORY  OF  BANKIKG. 


Supreme  Court  of  the  United  States  held  that  these  laws  withdrew  the  assets 
of  the  bank  from  the  note-holders,  who  were  entitled  to  payment  by  contract. 
If  the  charter  had  been  repealed,  which  it  had  not,  this  would  make  no 
difference.  The  State  had  no  right  to  withdraw  the  assets.  If  the  construc- 
tion of  the  State  Court  was  good,  "the  bank  had  no  proper  capital  which 
was  bound  by  its  contracts,  and  this  would  render  it  extremely  difficult  to 
maintain  the  validity  of  the  charter"  since  its  notes  would  be  bills  of  credit.* 

The  law  of  the  matter  was  then  summed  up  to  that  date  as  follows : 
"The  cases  of  Briscoe  x'.s-.  the  Bank  of  Kentucky  and  Darrington  r.v.  the  Bank 
of  Alabama  have  settled  the  question  [of  the  power  of  the  States  to  make 
corporations  to  issue  notes]  in  reference  to  such  banks  as  were  involved  in 
those  cases;  but  the  principal  ground  on  which  such  bills  were  distinguished 
from  bills  of  credit  emitted  by  the  State  was  that  they  do  not  rest  on  the 
credit  of  the  State,  but  on  the  credit  of  the  corporation  derived  from  its 
capital  stock." 

When,  in  1846,  the  trustees  of  the  Real  Estate  Bank  were  asked  why  the 
collections  were  so  tardy,  their  secretary  replied  that  the  loans  were  first 
used  to  pay  old  debts;  that  credit  was  so  easy  that  many  were  seduced  into 
borrowing  imprudently;  that  many  mortgaged  their  land  at  such  a  high 
valuation  that  they  would  now  rather  surrender  it  than  pay ;  that  some  were 
waiting  for  a  further  depreciation  of  the  State  securities,  forgetting  accum- 
ulating interest;  that  many  hoped  in  some  way  to  escape  payment.  The 
GoNcrnor  at  that  time  was  alarmed  at  the  repudiation  sentiment  and  at  the 
irritation  produced  by  the  collections  foi  the  State  Bank. 

In  1846,  an  amendment  was  adopted  to  the  State  Constitution :  "No  bank 
or  banking  institution  shall  be  hereafter  incorporated  or  established  in  this 
State."  When  this  amendment  was  put  to  vote  in  the  Legislature  there  was 
not  a  vote  against  it. 

The  State  Auditor,  in  his  report  of  1848,  called  attention  to  the  fact  that 
$n4.ooo  of  the  bonds  of  the  State  had  been  sent  to  Washington  eight  or  nine 
years  before,  to  be  sold  to  the  Secretary  of  War,  who  refused  to  receive  them. 
They  were  still  lying  in  a  Washington  bank. 

J.  M.  Curran  instituted  ninety-four  suits  against  the  bank,  in  1849,  for 
State  Bank  notes  to  the  total  amount  of  $9.3^=;,  and  recovered  that  a.mount, 
with  $1,314  damages.  He  won  at  every  step  up  to  the  Supreme  Court  of 
the  United  States.  With  accumulated  interest  the  amount  became  $:20,883. 
Assets  of  the  b.'.nk,  which  stood  on  the  books  at  $109,720,  were  sold  under 
judgment  to  satisfy  this  debt. 

It  appears  that  the  banking  houses  which  were  built  by  the  Bank  of  the 
State  of  Arkansas  were  extravagant  and  also  were  such  buildings  as  could 
not  be  converted  to  other  uses.  The  one  at  Little  Rock  which  cost  about 
$28,000,  in  1840,  was  sold  in  1843  for  about  $200.  The  others  sold  at  very 
much  the  same  loss.     The  one  at  the  Post  cost  $16,000.     It  was  bought 

*  15  Howard.  504.     (1853.) 


t,i.    .,;.,,.-WI  *•«*!•'>*«« 


vm»»-<i>m«' 


^    ';; 


THE  LKIUIDATION;  1842  TO  1845. 


39'? 


in  by  the  State  for  $100,   but  was  so  situated  that  it  could  not  be  put 
to  use. 

As  soon  as  the  Bank  of  the  State  went  into  liquidation,  it  .ippcars  that  it 
only  fell  into  the  hands  of  a  new  set  of  plunderers.  No  investigators  ever 
were  able  to  find  out  how  the  exchange  of  bank  notes  for  State  bonds  was 
carried  out.  One  receiver,  as  a  committee  said,  "traded  with  himself"  for 
bonds  in  exchange  for  notes,  and  no  record  of  the  transaction  w.is  kept. 
The  receivers  also  retained  bonds  which  thev  had  bought,  and  took  for 
themselves  the  interest,  instead  of  returning  the  bonds  to  the  ireasury  for 
cancellation,  as  the  law  required.  Indeed  they  paid  little  heed  to  the 
prescriptions  of  the  st.itute  as  to  their  duties.  A  committee  of  i8^o  said  that 
"in  many  cases  the  great  bulk  of  the  loss  is  attributable  to  the  criminal 
.negligence  and  dishonesty  of  the  officers  of  the  bank."  They  allowed  the 
loans  to  be  lost  under  the  statute  of  limitations.  They  neglected  to  attend 
to  the  security  of  the  debts,  and  allowed  their  friends  who  were  men  of 
wealth  to  escape,  by  taking  men  of  no  responsibility  in  their  stead,  and 
neglected  to  enforc."  collections.  "The  history  of  the  bank  exhibits  the 
most  astounding  instance  of  long-continued  mismanagement  and  open  r.buse 
of  trust  that  ever  occurred  in  a  country  of  laws."  The  causes  were  chietly 
indifference  as  to  qualifications  in  selecting  officers,  and  lack  of  accountability. 
"In  the  possession  of  vast  amounts,  freed  from  all  restraints,  every  obligation 
seems  to  have  been  released  and  every  law  regulating  their  duty  set  at 
defiance." 

.  At  the  session  of  1812-3,  a  proposition  was  made  to  enact  a  free  banking 
law  on  the  New  York  model.  It  was  at  last  submitted  to  a  popular  vote, 
when  the  people  refused  to  call  a  convention  for  the  necessary  amendment 
to  the  Constitution. 

The  Legislature.  January  12,  1833,  adopted  resolutions  that  the  Attornev- 
Generai  should  file  a  bill  in  chancery  for  an  accounting  by  the  trustees  of  the 
Real  Estate  Bank,  reciting  in  the  preamble:  "It  is  known  that  the  trustees 
have,  in  many  respects,  violated  the  provisions  of  said  deed,  and  there  is 
great  reason  to  believe  that  great  losses  have  been  sustained  by  their  neglect 
and  improper  conduct."  In  the  following  year,  however,  the  Governor 
declared  that  the  mystery  which  surrounded  the  liquidation  of  the  bank  had 
not  been  broken.  It  refused  to  answer  questions,  although  in  answer  to  a 
demand  from  him,  it  made  a  return  of  the  bonds  which  it  had  received  in 
the  course  of  its  operations,  and  which  it  held.  The  Bank  of  the  State  had, 
up  to  that  time,  redeemed  and  canceled  two  hundred  and  thirty  bonds.  No 
interest  had  been  paid  on  the  outstanding  bonds,  but  the  United  States  had 
retained  land  payments  which  were  due  to  Arkansas  towards  the  interest 
on  the  $soo,cxx)  in  the  endowment  of  the  Smithsonian.  The  amount  of 
this,  to  i8^^  was  $46,834. 

At  the  next  session,  the  Legislature  made  another  attempt  to  bring  to 
light  the  true  condition  of  affairs  in  the  Real  Estate  Bank.  The  Governor 
was  to  institute  suits  and  employ  counsel.     The  liability  of  the  State  for 


'       .  I 


P' 

i  ■ 

1} 

i''i'' 

1 

lll\ll, 

1 

ip, 

'; 

hi'l 


ilp 


^96 


/I  HISTORY  OF  BANKING. 


compound  interest  on  the  bonds  w;is  afTirmed  in  the  Circuit  Court  of  the 
St;ite,  in  1854.*  Thereupon,  while  the  suits  begun  by  the  Governor  were 
pending,  others  were  begun  by  creditors.  It  was  feared  that  they  would  suc- 
ceed in  getting  judgments  and  would  sacrifice  the  assets.  The  plaintiffs 
had  filed  only  copies  of  the  bonds  on  which  they  sued.  In  order  to  defeat 
them  a  law  was  passed,  December  7,  18^4,  that  the  original  bonds  must  be 
produced  and  filed  in  the  office  of  the  clerk,  and  could  not  be  withdrawn 
except  upon  an  order  of  the  Court.  If  the  originals  were  not  filed,  the  suit 
must  be  dismissed.  This  course  was  taken  in  five  suits,  and  upon  appeal 
to  the  Supreme  Court  of  the  United  States,  the  law  was  sustained.  +  The 
doctrine  was  affirmed  that  those  who  deal  with  a  State  must  rely  on  its 
good  faith. 

In  i8s6,  Arkansas  for  the  first  time  had  a  balance  in  the  treasury  in  gold 
and  silver.  It  amounted  to  nearly  $150,000,  and  all  the  warrants  had  been 
retired.  Up  to  that  time  607  State  bonds  had  been  '•etired  by  the  liquida- 
tion operations  of  the  Bank  of  the  State. 

In  1857  the  bonds  which  had  Iain  in  Washington  had  been  recovered 
and  were  ordered  to  be  burned.  All  suits  relative  to  the  Real  Estate  Bank 
were  put  under  the  juiisdiction  of  the  Pulaski  County  Chancery  Court.  An 
act  was  also  passed  against  trespassers  and  squatters  on  the  lands  of  the 
bank. 

W.  M.  Gouge  and  A.  H.  Rutherford  were  appointed  accountants  under 
an  act  of  January  is,  1857,  to  investigate  the  Bank  of  the  State  of  Arkansas. 
Several  previous  attempts  had  been  made  to  investigate  its  accounts,  but 
the  investigators  had  all  given  it  up  on  account  of  the  confusion  of  the 
books  and  the  magnitude  of  the  labor.  These  two  made  a  report,  October 
10,  1858,  after  having  done  their  best  to  reconstruct  the  accounts  and  dis- 
cover the  facts.  The  fact  which  stands  out  most  distinctly  in  this  report  is 
that  all  parties,  at  the  time  the  banks  were  founded,  regarded  the  money 
which  was  brought  into  the  State  by  them  as  a  pure  bounty.  The  peo- 
ple never  gave  themselves  a  clear  account  of  what  they  were  doing,  or  what 
they  expected,  but  they  thought  of  banks  as  fountains  of  wealth,  and  did 
not  really  feel  that  any  one  would  ever  have  to  fulfill  any  onerous  engage- 
ments to  one  of  them. 

A  Committee  of  the  Legislature  of  that  year  refused  to  give  weight  to  an 
appeal  on  behalf  of  the  stockholders  of  the  Real  Estate  Bank.  That  bank, 
they  said,  "was  a  speculation  from  its  very  beginning.  If  it  had  been  suc- 
cessful the  profits  would  have  been  theirs;  if  it  has  been  unsuccessful,  others 
ought  not  to  bear  the  loss." 

Up  to  October  i,  i860,  there  had  been  paid  on  the  debt  of  the  State^ 
$2,341,996.  There  was  still  outstanding  a  little  more  than  a  million  for  the 
State  Bank  and  $1.6  millions  for  the  Real  Estate  Bank.  There  was  also  a 
debt  of  $267,455  for  principal  and  interest  of  the  negotiation  with  the  North 


*  9  Banker's  Magazine,  488. 


t  20  Howard.  327.  ^50. 


i-i 


THE  LIflUIDATION:  1842  TO  184^. 


3^)7 


American  Trust  Company,  /.  e.,  for  the  amount  received  on  the  Holford 
bonds.* 

January  16,  1861,  an  act  was  passed  to  enable  the  State  to  foreclose  lands 
mortgaged  to  the  Real  Hst  ite  Bank:  all  the  stock  mortgages  were  to  be 
assessed  to  make  up  the  deficiency  of  assets,  to  pay  tiie  principal  of  the 
bonds  which  fell  due  in  that  year. 

We  meet,  once  more,  with  an  act.  March  S,  1S67,  to  appoint  an  agent 
to  settle  the  accounts  of  the  Bank  of  the  State.  An  act  of  April  0,  i.Sd^, 
provided  that  all  assets  of  the  State  Bank  and  the  Real  Estate  Bank  should 
be  held  as  a  sinking  fund  for  the  bonds  which  were  then  issued  to  refund  the 
old  bonds  which  had  been  issued  for  the  banks.  A  further  act  of  February 
5,  1879,  provided  that  the  bonds  issued  to  refund  the  Holford  bonds  should 
not  be  received  for  debts  to  the  Real  Estate  Bank.  A  resolution  was  also 
passed,  without  the  Governors  signature,  proposing  a  constitutional  amend- 
ment that  the  Legislature  should  never  have  power  to  lay  a  tax  or  make  an 
appropriation  to  pay  the  Holford  bonds.  In  1881,  the  Auditor  and  Treasurer 
were  instructed  that  they  were  not  required  to  report  railroad  aid  and  levee 
bonds  and  Holford  bonds  in  the  indebtedness  of  the  State.  A  large  section 
of  the  revised  statutes  of  1884  deals  with  foreclosures  of  lands  mortgaged  to 
the  Real  Estate  Bank,  and  with  a  land  office  system  to  dispose  of  them 
again  in  the  interest  of  the  State, 

Tennbssbe. — The  Bank  of  the  State  was  authorized,  January  2s.  1842,  to 
issue  notes  between  .$1  and  .$s.  so  long  as  the  suspension  should  last. 

At  the  session  of  1841-2,  apparently  in  spite  of  a  veto,  since  no  date  is 
given,  the  Bank  of  the  State  was  ordered  to  pay  ,$200,000  to  East  and  West 
Tennessee,  half  to  each,  for  improvements,  and  .$200,000  in  bonds  then 
printed  and  lying  in  the  bank  for  that  purpose  were  to  be  burned. 

All  the  papers  and  books  of  the  Circuit  Court  of  McMinn  County.  Ten- 
nessee, were  burned  in  May.  1842,  apparently  upon  a  burglarious  entry. f 

An  extra  session  of  the  Legislature  was  called  in  October.  In  the  Gov- 
ernor's message  it  was  stated  that  the  Southwestern  Railroad  w;'s  likelv  to 
be  abandoned.  He  wanted  an  investigation  of  the  Bank  of  the  State  on 
general  principles,  and  was  anxious  by  means  of  its  profits  to  avoid  the 
"oppression  of  direct  taxation."  There  was  great  pecuniary  embarrass- 
ment, he  said,  throughout  the  State,  and  relief  was  needed.  He  charged 
everything  to  the  federal  government  and  the  overthrow  of  the  United 
States  Bank.  Money  was  scarce;  the  currency  of  the  State  h.id  been 
reduced,  since  1836-7,  from  Ss  millions  to  $1.2  millions.  At  the  extra  ses- 
sion a  number  of  measures  were  adopted  for  relief.  October  29th,  ail  banks 
were  allowed  to  issue  notes  down  to  .$1  until  January  1,  1847.  The  redemp- 
tion law  of  1820  was  changed  so  that  any  one  who  bought  land  of  one 
who  bought  it  in  execution  should  hold  it  subject  to  redemption  for  two 
years,  with  six  per  cent,  interest,  as  the  first  buyer  did.     The  Bank  of  Ten- 


*  Governor's  Message,  i86r. 


+  Gouge  ;  Journal  of  Banking.  374. 


;  I'ii 


I    '1 


t' 


111. 


r? 


■i^n 


■w 


ft! 


11 


M    >' 


'  »H 


J98 


/*  HISTORY  OF  BANKING. 


nessee  was  allowed  to  discount  notes  for  sums  under  $so,  and  to  continue 
reductions  on  other  notes  till  they  were  brou^^ht  down  to  $so.  Loans  to 
bank  directors  were  restricted  and  security  was  to  be  taken  for  those 
which  they  already  had.  In  July,  the  Attornev-Kcneral  had  sued  out  a  scire 
ftuiiis  against  the  Union  Bank  and  the  Planters'  Bank  for  not  paying?  specie; 
but  these  suits  were  now  discontinued  because  tliese  banks  had  resumed 
August  1st. 

The  Bank  of  the  State  and  the  internal  improvement  Commissioners  of 
Fast  and  West  Tennessee  could  not  agree  on  the  construction  of  the  law 
which  required  that  the  bank  should  pay  $i(K),(kx)  to  each  section  for 
improvements.  The  act  of  November  12,  1842,  distributed  the  money  which 
the  bank  was  called  upon  to  pay. 

The  Bank  of  East  Tennessee  was  chartered  December  27,  1S43,  at  Knox- 
ville;  $800,000  capital;  on  the  model  of  the  Union  Bank. 

The  president  of  the  Bank  of  Tennessee,  in  his  report  of  1843,  antici- 
pated a  deficit  in  the  following  year,  because  the  interest  on  the  internal 
improvement  bonds  had  been  steadily  increasing  every  year,  and  more 
bonds  were  to  be  issued,  so  that  the  profits  of  the  institution  could  not  equal 
what  it  would  be  called  upon  to  pay.  He  complained  also  of  the  burden 
laid  upon  the  bank  to  pay  the  above  $200,000  for  river  improvement,  which, 
he  says,  will  have  to  come  out  of  the  capital.  He  proposed  that  expenses 
should  be  reduced  by  discontinuing  some  of  the  branches,  and  that  the  bank 
should  be  relieved  from  the  arbitrary  charge  p\  iced  upon  it  for  the  school 
fund.  Of  the  internal  improvement  companies  in  which  the  State  held 
stock,  only  one  had  paid  any  dividend,  the  amount  being  $3,696.  The 
Commissioners  appointed  to  examine  one  of  the  branches  declared  that  they 
could  not  understand  how,  if  private  individuals  whose  interests  were 
identified  with  the  bank  they  managed  could  only  make  five  percent.,  it 
could  be  expected  that  a  bank  owned  entirely  by  the  State,  and  managed  by 
men,  however  skillful  and  honest,  "whose  private  interests  are  indirect 
opposition  to  that  of  the  institution  which  they  have  been  appointed  to  direct 
and  govern,"  can  make  as  much  for  the  State.  They  proposed  to  wind  up 
the  bank  and  invest  all  that  could  be  saved  in  bonds  of  the  State,  which  were 
at  an  important  discount.  They  gave  as  another  reason  for  this  course  that 
it  could  not  "have  escaped  the  observation  of  the  most  casual  observer 
that  if  this  institution  is  continued,  under  whatever  system  of  re-organization 
might  be  adopted,  it  would  be  a  bone  of  contention  between  two  rival 
political  parties,  the  ins  and  outs,  each  of  which  will  be  contending  for  the 
spoils,  like  vultures  for  the  carcass,  so  long  as  any  portion  of  the  capital 
remains." 

The  president  of  the  bank,  in  184s,  declared  that  it  had  afforded  the 
relief  which  it  was  founded  to  give  and  ought  to  be  wound  up. 

Kentucky. — A  convention  of  a  large  number  of  banks  of  Kentucky, 
Indiana,  Illinois,  and  Ohio  was  held  at  Louisville,  January  2=5,  1841,  to 
consider  resumption.     It  adjourned  without  action  and  without  day,  but 


rUF.  I.IQUIDA710N;  1S42  TO  iS^^. 


m 


rccommunded  that  another  convention   for   the   same  purpose   be  held 
some  time. 

The  c;ipit;ii  of  the  Kentucky  b;ink.s  w;is  very  l;irj,'elv  held  in  the  Hast 
The  presitient  oS.  the  H.ink  of  Kentucky  st;iteci  in  i.S^o  th.it  is.  1  T)  sh.ires  of 
the  bank  were  on  the  iK.oks  at  New  York  aiul  I'hiiailclpiiia,  and  4,780  at 
Louisville.  On  account  of  the  large  amount  of  shares  of  the  Louisville  Bank 
of  Kentucky,  which  were  held  in  the  Kast,  transfer  agencies  were  opened  in 
New  York  and  Philadelphia,— in  the  latter  city  at  the  Schuylkill  R.ink.  The 
cashier  of  that  bank  issued  spurious  certilicates  to  the  amount  of  i  ^ooo 
shares,  447  of  which,  however,  were  surrendered  by  the  holder,  being  held 
as  collateral  only.  This  fraud  was  discovered  in  December,  iX-jc).  1-ebruary 
22,  1842,  the  Legislature  of  Kentucky  passed  an  act  under  which  the  Bank 
of  Kentucky  set  aside  a'l  its  surplus  profits  over  five  per  cent.,  and  all 
which  it  cr-'ild  recovei  irom  the  Schuylkill  Bank,  as  a  "stock  fuml"  out  of 
which  to  uieet  the  exp.  nses  and  losses  of  the  over-issue.  The  capital  was 
increased  $1  million  and  the  spurious  stock  in  the  hands  of  innocent  holders 
was  recognized.  Satisfactory  proof  must  be  given  that  the  holder  was  an 
innocent  purchaser.  An  act  of  March  3d  limited  the  amount  which  the 
bank  might  pay  for  the  spurious  stock  to  $40  per  share.  In  1S4C),  it  reported 
that  it  had  bought  up  the  fraudulent  stock,  and  had  obtained  from  the 
Schuylkill  Bank  perhaps  $600,000  worth  of  assets,  under  a  judgment  of  the 
Pennsylvania  courts.* 

In  these  days  of  liquidation,  relief  laws  were  once  more  called  for.     They 
now  took  the  form  of  an  extension  of  exemption  laws. 

As  a  further  relief  measure,  March  8,  1843,  the  bank  at  Louisville  was 
ordered  to  set  up  two  branches,  within  three  months,  with  not  less  tiian 
$100,000 capital  in  each;  but  cither  branch  might  be  withdrawn  or  removed 
if  it  did  not  earn  six  per  cent.  If  the  bank  complies  with  this  order,  the  term 
of  its  charter  is  to  be  extended  ten  years.  It  may  purchase  and  retire  $1  so.ooo 
of  its  stock.  The  banks  are  all  forgiven  for  suspension  if  they  comply  with 
this  act.  The  bank  at  Louisville  is  to  loan  $100,000  in  each  congressional 
district  in  which  it  has  a  branch.  Loans  are  to  be  called  in  not  more  rapidly 
than  ten  per  cent,  in  each  of  the  first  two  periods  of  120  days,  and  not  over 
twenty  per  cent,  in  each  subsequent  period  of  120  days,  making  720  days 
for  the  payment  of  an  entire  debt.  Not  over  $i,ofXJ  was  to  be  loaned  to  one 
person.  The  Bank  of  Kentucky  and  the  Bank  of  Northern  Kentucky  were 
to  inake  similar  loans  in  other  districts;  if  the  formei  consents  to  this,  it  may 
surrender  $1  million  of  five  per  cent,  bonds  of  the  State,  and  reduce  its 
capital  $1  million;  the  Bank  of  Northern  Kentucky  in  like  manner  $7^0,000, 
and  they  may  issue  notes  down  to  $1 ;  the  Governor  may  sell  five  per  cent, 
bonds  to  the  amount  of  $1,7^0,000,  and  invest  the  proceeds  in  stock  of  the 
three  banks,  if  he  can  get  that  of  the  Bank  of  Kentucky  at  eighty  and  that  of 
the  other  two  at  ninety;  this  stock  to  be  put  in  the  sinking  fund  and  the 


I 


i! 


'•11 


•  1  Parson's  Equity,  181. 


<  '  i 


■3^ 


400 


A  HISTORY  OF  BANKING. 


i'l  ■ 


A*) 


dividends  to  go  to  it.     The  loans  were  to  be  apportioned  in  the  counties 
according  to  the  number  of  voters. 

The  Committee  on  Banks,  in  their  report  of  December,  1843,  said: 
"There  never  was,  perhaps,  a  set  of  banks  that  have  done  so  much  business 
and  sustained  fewer  losses  than  the  Kentucky  banks  within  the  last  two 
years."  In  tho  following  year  the  same  committee  said:  "YourComnit- 
tec  do  not  believe  that  there  has  existed,  at  any  former  period  in  the  history 
of  the  State,  a  system  of  banking  under  its  authority  more  eminently  suc- 
cessful in  establishing  a  currency  free  from  fluctuation,  and  in  affording  the 
surest  guarantees  to  the  holders  of  its  circulation  than  the  present;  or  which 
more  fully  possess  the  public  confidence." 

A  committee  was  appointed,  January  20,  1844,  to  inquire  of  the  banks 
what  loans  they  have  made  under  the  act  of  March  8,  1843;  whether  they 
mean  to  call  twenty  per  cent,  of  the  loans,  as  the  law  allows;  on  what 
terms  they  will  grant  renewal  and  delay;  whether  they  cannot  increase 
their  circulation. 

The  right  to  issue  notes  under  $5  was  extended  to  the  banks  for  the 
duration  of  their  charters,  January  21,  1846. 

In  i8so,  the  charter  of  the  Southern  Bank  of  Kentucky  was  extended  to 
1880,  provided  that  no  interest  should  be  paid  to  the  bank  on  the  State  scrip 
issued  to  it,  so  long  as  it  held  the  same;  and  that  it  should  pay  the  interest 
on  the  scrip  if  it  should  sell  it. 

Ohio. — In  January.  1842,  the  irritation  against  banks,  on  account  of 
troubles  with  the  circulation,  led  to  a  riot  in  Cincinnati,  in  which  two  or 
three  banks  had  their  books,  papers,  and  furniture  destroyed.  There  were 
runs  on  these  banks,  not  for  specie,  but  for  some  paper  better  than  their 
own.  The  militia  were  called  out  and  some  persons  were  wounded,  but 
the  militia  acted  very  unwillingly.*  The  next  day  there  was  a  similar  riot 
in  Louisville. 

January  21,  1842,  the  Legislature  passed  resolutions  e.xhorting  the 
neighboring  States  to  resume  specie  payments,  and  pledging  Ohio  to  do  the 
same.  In  the  first  months  of  1842,  a  number  of  bank  charters  were  repealed 
or  annulled.  February  18th,  an  act  was  passed  that  banks  not  redeeming 
their  notes  shall  be  held  to  have  forfeited  their  charters;  they  are  prohibited 
from  assigning.  The  Bank  Commissioners  are  to  apply  for  injunction,  or 
the  note-holders  may  do  so,  the  facts  to  be  found  by  a  jury.  Debts  are 
divided  into  two  classes, — those  which,  according  to  the  contract,  are  to  be 
paid  in  depreciated  notes,  and  those  not  so  payable  by  the  contract.  In  the 
first  case,  the  bank  notes  are  allowed  as  a  set-off,  the  jury  to  decide  the 
facts  In  the  second  case,  no  bank  notes  are  allowed  as  a  set-off,  but  pay- 
ment must  be  in  gold  or  silver.  Notes  redeemed  by  the  receivers  are  to  be 
burned.  In  case  of  an  appeal  by  the  bank  of  a  suit  against  it,  if  the  plaintiff 
gets  as  much  on  appeal  as  before,  the  bank  is  to  pay  twenty-five  per  cent. 


*  Gouge;  Journal  of  Banking,  23a. 


77/Z:  LIQUIDATION;  1842  TO  1845. 


401 


damages,  over  anJ  above  all  interest  and  costs.  There  is  to  be  no  stay  of 
execution  on  a  judgment  against  a  bank.  At  a  meeting  of  the  bani<s  by 
delegates  at  Columbus,  they  resolved  to  act  together  to  sustain  each  other. 
Part  of  the  plan  was  to  establish  a  Suflblk  system  of  central  redemption. 
March  5th,  the  notes  of  a  bank  were  made  payable  to  it  in  all  suits  by  the 
bank  or  its  assignees. 

March  7th,  another  act  to  regulate  banking  was  passed.  The  association 
was  first  to  be  formed  and  then  to  apply  for  a  charter.  All  were  to  have  the 
same  general  powers  of  organization;  all  capital  to  be  paid  in  in  specie 
before  beginning;  Bank  Commissioners  to  inspect  the  bank  and  certify  that 
this  has  been  done;  no  loan  to  be  made  to  a  director  for  more  than  half  his 
shares;  in  a  $100,000  bank  no  one  person  to  owe  it  more  than  $8,000,  and 
so  on  according  to  a  scale ;  no  loan  to  be  made  to  an  officer;  debts,  exclusive 
of  deposits,  not  to  exceed  one  and  a- half  times  the  capital;  the  circulation 
never  to  exceed  the  capital,  .  '-.o'  one-third  of  it  to  be  held  in  specie;  a  State 
officer  to  register  and  countersign  the  notes,  and  to  guard  the  limit  for  each 
bank  as  returned  to  him  by  the  Commissioners;  tax  to  be  one-half  of  one 
per  cent,  on  the  paid  up  capital,  but  the  Legislature  may  change  it;  banks 
organized  under  this  act  to  take  each  others'  notes,  exchanging  notes  as  the 
Commissioners  direct,  and  paying  balances;  no  note  to  be  issued  between 
$5  and  §10  or  between  the  other  decimal  denominations. 

On  the  same  day,  another  act  was  passed  that  no  State  officer,  after 
March  4th  of  the  next  year,  should  pay  out  any  note  not  redeemable  in 
specie  on  demand;  penalty,  to  be  liable  in  an  action  for  debt  for  the  differ- 
ence in  value  between  the  note  and  specie,  and  to  lose  his  office.  Ex- 
ception was  made  of  notes  taken  before  that  date  on  account  of  the 
State.* 

On  the  same  day,  still  another  act  was  passed,  which  shows  that  the 
unauthorized  companies  were  still  issuing  notes.  If  any  incorporated 
company,  not  having  banking  powers,  becomes  insolvent,  or  refuses  to  pay 
the  evidences  of  debt  which  it  has  put  in  circulation,  or  suspends  business 
for  a  year,  or  violates  its  act  of  incorporation,  or  puts  out  circulating  notes, 
it  shall  be  held  to  have  forfeited  its  charter,  and  shall  be  adjudged  to  be 
dissolved;  the  courts  to  have  visitorial  powers;  all  acts  of  incorporation 
hereafter  to  be  subject  to  amendment  and  repeal;  private  corporations  are 
subject  to  individual  liability. 

The  Bank  Commissioners  in  this  year  laid  special  emphasis  on  the  abuse 
that,  upon  the  failure  of  a  bank,  its  directors  and  stockholders,  who  had 
large  loans  from  it,  surrendered  their  stock  in  cancellation  of  the  loans, 
although  the  stock  might  have  no  market  value.  They  thus  escaped 
liability. 

There  was  at  this  time  an  appraisement  law  that  the  sheriff  should,  at 
the  demand  of  the  debtor,  summon  three  householders  to  appraise  property 


^^1 


m 


i).i 


I 


26 


•  The  text  s.iys  "  March  4th  next ;  "  the  act  was  signed  March  7th. 


402 


A  HISTORY  OF  BANKING. 


taken  in  execution,  and  that  it  should  not  be  sold  unless  two-thirds  of  the 
valuation  was  bid. 

The  act  for  the  regulation  of  banks  was  amended  February  21,  1843. 
No  one  was  allowed  to  be  a  director  in  two  banks ;  not  more  than  one 
member  of  a  firm  might  be  a  director  in  the  same  bank;  no  loan  might  be 
made  for  more  than  six  months;  no  dividend  might  be  made  when  the 
capital  was  impaired;  the  stockholders  were  to  be  individually  liable, 
except  where  the  depositors  and  the  bank  might  otherwise  agree  as  to 
deposits;  it  was  unlawful  for  the  president  or  cashier  to  deal  in  stocks.  In 
this  act  five  new  banks  were  organized  under  the  law,  and  five  others  sub- 
mitted to  it.  This  act  was  considered  too  stringent,  and  banking  associations 
refused  to  organize  under  it,  hoping  and  expecting  relaxation.  February  15, 
1844,  three  banks  which  complained  of  the  restrictions  of  this  law  and 
asked  extensions  of  their  old  charters  obtained  what  they  asked  for,  on 
condition  of  consenting  to  individual  liability  and  keeping  one-third  of  their 
circulation  in  specie.  Immediately  afterwards  three  others  took  the  same 
step. 

Of  the  twenty-thrt",  banks  in  Ohio,  with  a  capital  of  $7  millions,  the 
charters  of  thirteen  expi  ed  by  limitation  January  i,  1843,  and  of  two  more, 
a  year  later.  The  remaining  eight  had  a  capital  of  $3.4  millions,  of  which 
about  half  was  owned  in  the  State.  In  December,  1843,  the  Commissioners 
said:  "There  probably  never  was  a  time  when  the  banks  of  the  State  were 
in  a  better  condition  than  the  present." 

Speaking  of  the  ending  of  these  thirteen  banks,  the  Governor  said,  a  year 
later:  "Instead  of  the  ruin  and  disaster  predicted  from  the  event,  business 
and  enterprise  have  continued  to  revive  unimpeded  in  their  progress;  thus, 
as  the  banking  system  has  literally  rotted  down  in  the  sink  of  its  own  folly 
and  corruptions,  the  prosperity  of  the  country  has  received  new  life. 
Industry  and  enterprise,  relieved  from  the  bondage  of  banking  operations, 
are  recovering  their  energies  with  renewed  vigor." 

The  Senate,  in  1844,  called  upon  the  BankCommissionersfor  an  estimate 
of  the  loss  of  the  people  of  that  State  by  banks  since  1831.  The  answer  had 
no  value  on  any  point  but  one, — the  loss  by  the  circulation,  which  was  put 
at  $1.4  millions.* 

The  Bank  Commissioners,  in  1844,  gave  a  list  of  forty-seven  banks  in  that 
State  which  had  failed.  The  Governor  in  that  year  expressed  himself 
strongly  opposed  to  the  New  York  free  banking  system.  One  of  the  most 
famous  of  the  unauthorized  note-issuing  com"  .nies,  the  Granville  Alex- 
andrian Society,  came  to  the  surface  once  more  March  8,  1845,  when  an  act 
was  passed  to  settle  doubts  whether  the  note-holders  could  enforce  payment 
against  it,  since  it  never  had  a  right  to  issue,  and  whether  it  could  collect 
debts  due  to  it  for  its  banking  business;  both  were  provided  for,  in  order  to 

•  The  Governor  quoted,  without  stating  his  authority,  statistics  of  the  losses  to  the  whole  country  by  the  revulsion, 
1837  to  1841,  as  follows:  bank  circulation  and  deposits,  |^4  millions;  bank  capital,  $148  millions;  company  stock, 
$So  millions  ;  depreciation  of  SUte  stock,  $100  millions  ;  real  estate,  $300  millions. 


THE  LIQUID  A  TION ;  1842  TO  1843. 


401 


liquidate  all  its  affairs.  Two  more  acts  are  found  forbidding  unauthorized 
note  issues,  tiie  first,  March  12,  184s;  the  second,  March  2,  1846,  extended 
the  time  after  which  the  State  Treasurer  should  not  receive  or  pay  out  such 
notes. 

In  1845  the  nomenclature  of  the  Ohio  currency  was  given  as  "yellow 
dog,"  "red  cat,"  "smooth  monkey,"  "blue  pup,"  and  "sick  Indian."* 

Michigan. — The  Governor  made  a  contract,  June  i,  1838,  with  the  Morris 
Canal  and  Banking  Company,!  by  which  they  became  the  agents  of  the 
State,  to  sell  the  $5  millions  loan.  They  sold  and  accounted  for  $1, 187,000. 
July  I,  1841,  the  interest  was  not  paid  on  these  bonds.  In  February,  1843, 
an  arrangement  was  made  to  fund  the  interest  until  1845.  As  the  bank 
could  not  sell  any  more  and  was  urged  by  the  Governor,  it  proposed  that 
he  should  deliver  all  the  bonds  at  once  on  a  sale  to  the  mentioned  bank  and 
the  Bank  of  the  United  States,  to  be  paid  for  in  installments,  one-fourth  by 
the  former  and  three-fourths  by  the  latter.  He  agreed.  One  million  was 
paid  before  both  banks  became  bankrupt.  In  the  meantime  the  bonds  had 
been  hypothecated  in  Europe  by  the  Bank  of  the  United  States  as  security 
for  its  borrowings  there.  Michigan  refused  to  pay  more  than  she  had 
received. 

The  Bank  Commissioners  in  their  report,  January  18,  1839,  said:  "Stand- 
ing, as  Michigan  does,  upon  the  ruins  of  her  credit  and  currency,  it  behooves 
her  to  carefully  examine  the  causes  which  have  precipitated  to  almost  entire 
destruction  the  edifice  so  lately  erected,  and,  by  the  light  of  other  examples 
and  her  own  experience,  to  rear  upon  a  safer  and  surer  foundation  that 
which  her  present  condition  calls  upon  her  to  establish." 

"On  the  15th  day  of  March,  1837,  the  act  popularly  entitled  the  'general 
banking  law'  was  passed,  upon  the  plausible  principle  of  introducing  a  free 
competition  into  what  was  considered  a  profitable  branch  of  business  here- 
tofore monopolized  by  a  fev  favored  corporations.  In  a  little  more  than  a 
year  forty-nine  banks  were  organized,  with  a  nominal  capital  of  $3,9 is, 000, 
and  about  forty  went  into  actual  operation  under  its  provisions.  These 
institutions  professed  to  have  an  actual  and  available  capital  of  $1,745,000; 
thirty  per  cent,  of  the  nominal  capital  being  presumed  to  have  been  paid  in 
according  to  law,  in  gold  and  silver.  They  were  authorized  to  issue  and  to 
put  into  circulation  bank  bills  to  the  sum  of  $4,362,500,  being  twice  and 
a-half  the  amount  of  capital  paid  in  and  possessed.  The  feature  of  the  act 
which  authorized  banking  under  the  suspension  law  (that  is  to  say,  giving 
the  sanction  of  law  to  the  issue  of  promises  to  pay,  not  liable  to  redemption 
in  gold  and  silver  on  demand)  gave  an  irresistible  impulse  to  their  career,  by 
opening  the  door  for  the  debtor  to  liquidate  his  liabilities  by  transferring  to 

•  68  Nilcs,  272. 

+  This  company  was  founded  in  1836.  E.  R.  Biddle  was  president.  He  had  no  capital,  but  undertook  iron  smelting 
with  anthracite  coal,  having  borrowed  from  the  Canal  and  Banlcing  Company  $180,000  on  bonds  payable  in  iron.  These 
bonds  were  transferred  to  the  State  of  iMichigan  with  other  securities  to  guarantee  the  unpaid  part  of  the  bonds  of  that  State; 
which  contract  ha  (  been  assumejt  by  the  United  States  Hank.     (Gouge:  Journal  of  Banking,  1 37.) 


'If  I 


:    '     ^1 

1'    .1         'i 


ii< 


rrr 


N'S 


404 


A  HISTORY  OF  BANKING. 


mi  ' 


the  public  at  large  his  indebtedness  to  individuals.  The  result  is  well  known ; 
and  it  is  believed  that  it  is  not  too  strong  language  to  assert  that  there  are 
no  species  of  fraud  and  evasion  of  law,  which  the  ingenuity  of  dishonest 
corporations  has  ever  devised,  which  have  not  been  practiced  under  this 
act." 

"The  loan  of  specie  from  established  corporations  became  an  ordinary 
traffic,  and  the  same  money  set  in  motion  a  number  of  institutions.  Specie 
certificates,  verified  by  oath,  were  everywhere  exhibited,  although  these 
very  certificates  had  been  canceled  at  the  moment  of  their  creation,  by  a 
draft  for  a  similar  amount;  and  yet  such  subterfuges  were  pertinaciously 
insisted  upon  as  fair  business  transactions,  sanctioned  by  custom  and  prece- 
dent. Stock  notes  were  given  for  subscriptions  to  stock,  and  counted  as 
specie;  and  thus  not  a  cent  of  real  capital  actually  existed,  beyond  the  small 
sums  paid  in  by  the  upright  and  unsuspecting  farmer  and  mechanic,  whose 
little  savings  and  honest  name  were  necessary  to  give  confidence  and  credit. 
The  notes  of  institutions  thus  constituted  were  spread  abroad  upon  the  com- 
munity in  every  manner,  and  through  every  possible  channel.  Property, 
produce,  stock,  farming  utensils,  everything  which  the  people  of  the  country 
were  tempted  by  advanced  prices  to  dispose  of,  were  purchased  and  paid 
for  in  paper,  which  was  known  by  the  utterers  to  be  absolutely  valueless. 
Large  amounts  of  notes  were  hypothecated  for  small  advances,  or  loans  of 
specie,  to  save  appearances.  Quantities  of  paper  were  drawn  out  by 
exchange  checks — that  is  to  say,  checked  out  of  the  banks  by  individuals 
who  had  not  a  cent  in  bank — with  no  security  beycnd  the  verbal  under- 
standing that  notes  of  other  banks  should  be  returned  at  some  future 
time." 

"The  result  of  the  experiment  of  free  banking  in  Michigan  is  that,  at  a 
low  estimate,  near  a  million  of  dollars  of  the  notes  of  insolvent  banks  are 
due  and  unavailable  in  the  hands  of  individuals." 

The  Commissioners  recommend  a  repeal  of  the  general  banking  law  and 
desire  "the  recommendation  by  the  Executive  of  a  State  institution,  under 
the  control  of  the  State  itself,"  subject  to  rigid  scrutiny. 

The  banks  all  suspended  October  28, 1839.  At  the  following  session  of 
the  Legislature,  a  Committee  of  Investigation  was  appointed  on  the  Bank  of 
the  State.  The  Committee  tried  to  ascertain  the  amount  of  indebtedness  on 
the  part  of  the  directors  of  the  bank,  but  the  information  was  refused ;  also 
i.iformation  on  the  item  of  their  exhibit,  "Due  from  banks."  "Shuffling, 
evasion,  and  concealment  are  not  the  companions  of  honesty."  Their 
available  assets  are  insufficient  "to  meet  their  indebtedness  to  the  State 
alone,  without  reference  to  their  other  liabilities."  The  Commissioners 
"believe  the  facts  above  stated  to  be  sufficient  to  warrant  them  in  coming  to 
the  conclusion  that  the  funds  of  the  State  cannot  be  safe  while  intrusted  to 
that  institution." 

In  July,  1841,  the  Detroit  "Daily  Advertiser"  maintained  that  not  one  of 
the  banks  of  that  State  had  complied  with  the  conditions  necessary  to  entitle 


THE  LIQUIDATION ;  1842  TO  /A^?. 


405 


it  to  the  benefits  of  the  suspension  acts  of  the  previous  winter.*  The 
same  newspaper  said  that  the  Bank  of  Michigan  owed  the  United  States,  in 
1839,  $80,000;  it  wanted  suspension;  it  got  it;  raised  the  circulation  from 
$150,000  to  $200,000;  bought  flour  and  porlc;  sold  them  for  enough  to  pay 
the  debt,  and  then  failed,  leaving  the  circulation  in  the  hands  of  the  people.f 
At  the  end  of  184 1,  the  people  in  the  country  districts  of  Michigan  adopted 
the  "Macon  specific,  "J  whereupon  specie  reappeared. 

in  January,  1842,  the  law  authorizing  suspension  was  repealed,  which 
forced  the  Bank  of  the  State  of  Michigan  into  liquidation. 

Indiana. — A  stay  and  replevin  law  was  adopted  February  24,  1840,  the 
delay  being  four  months. 

This  State  became  involved  in  financial  dealings  with  the  Morris  Canal 
and  Banking  Company.  By  joint  resolution  of  February  24,  1840,  the 
Legislature  expressed  their  dissatisfaction  with  the  security  which  had  been 
taken  by  the  president  of  the  Bank  of  the  State  for  $1  million  State  bonds, 
which  had  been  delivered  to  that  company.  The  Fund  Commissioners 
were  directed  to  require  additional  collateral.  The  amount  of  the  stock  of  the 
State  in  the  Bank  of  the  State,  as  we  learn  from  an  act  of  February  6,  1841, 
was  $1,304,950.  The  amount  which  it  had  advanced  to  pay  the  installments 
for  private  stockholders  was  $224,000.  It  was  ordered  that  this  should  be 
set  apart  to  redeem  the  bonds  issued  for  the  bank.  The  sinking  fund  was, 
at  the  time,  loaned  out  on  mortgages.  It  was  to  be  recalled  and  invested  in 
bank  stock.  The  sinking  fund  was  also  to  pay  to  the  treasury  all  surplus 
over  its  interest  and  charges.  These  two  grants  from  the  sinking  fund  were 
to  be  loans  to  the  State  at  six  per  cent.  The  Bank  of  the  State  might  issue  for 
five  years  not  over  $1  million  in  small  notes,  not  less  than  $1. 

An  appraisement  law  was  passed  February  13,  1841.  Rents  and  profits 
for  seven  years  must  first  be  offered  for  sale.  The  limit  of  valuation  was 
one-half  February  15th,  the  college  and  other  funds  which  had  been 
loaned  out  were  ordered  to  be  recalled  and  invested  in  bank  stock. 

The  Bank  of  the  State  of  Indiana  made  losses  until  1841,  $s8,ooo.  In 
December,  1842,  the  bad  and  doubtful  debts  were  nearly  $200,000,  but  there 
was  a  surplus  fund  far  exceeding  this.  The  bank  resumed  specie  payments 
June  15,  1842.  Within  a  few  months,  at  that  period,  the  currency  of  Ohio. 
Kentucky  and  Illinois  was  reduced  from  $is  millions  to  Ss  millions,  and 
that  of  this  bank  from  $2.7  millions  to  $1.7  millions.  No  convulsion  at  all 
was  produced.  The  State  had  issued  treasury  notes  of  which  this  bank  and 
itsbranches  held  $634, 7 10  which  they  could  not  circulate.  Two  of  the  branches 
were  very  much  crippled  by  them;  two  others  were  in  similar  difficulty 
from  large  loans  to  stockholders.  The  president  did  not  take  ground  against 
the  stay  law,  but  said  that  it  must  be  restricted  so  as  not  to  apply  to  future 
contracts,  if  business  was  to  recommence.  He  mentioned  that  within  a  short 
time  specie  had  been  transported  in  large  amounts  from  Indiana  to  New 
Orleans. 


1        1 


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•  Gouge;  Journal  of  Banking,  26. 


+  01  Niles,  loS. 


X  See  page  30:?. 


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■■i 


A  HISTORY  OF  BANKING. 


In  1843,  the  report  of  the  bank  was  very  encouraging.  Its  capital  had 
been  diminished  %boo,ooo,  which  had  not  weakened  it.  The  debt  of  the 
State  to  it  and  the  suspended  debt  had  been  greatly  reduced,  and  the  treasury 
notes  raised  nearly  to  par.  The  stockholders  owed  less  than  ever  before 
and  the  specie  had  increased.  Further  remarkable  illustrations  of  the  dis- 
cipline exerted  by  the  Central  Board  over  this  bank  were  presented  at  this 
time.  The  facts  show  that  such  discipline  was  called  for,  and  the  compara- 
tive success  of  this  bank  must  be  attributed  in  large  measure  to  the  vigor 
and  firmness  with  which  the  Central  Board  exerted  their  authority.  One 
branch  which  had  been  badly  managed,  and  had  persisted  in  spite  of 
admonitions,  was  suspended,  and  was  not  restored  until,  in  the  following 
year,  it  had  been  reduced  to  order  and  subordination,  under  the  rules  of 
policy  which  Me  Centra!  Board  had  adopted.  The  prospect  for  business, 
the  fc!  v. .VI  '     was  considered  good;  but  "much  more  might  be  done 

if  the  coii.;c  ■<  !. '  of  the  State  did  not  enable  so  many  of  the  bank  debtors 
to  violate  t..-'ii  i ,  ;4:.gements  with  impunity."  The  president  thought  that 
stay  laws  might  be  beneficial  both  to  creditors  and  debtors  in  certain  con- 
junctures, i'  '■•'t  th>  V  -^  'ght  to  be  removed  when  the  conjuncture  had 
passed.  In  10.^4  i  .-i  biin,.  u-i/.oned  for  and  obtained  a  continuance  of  the 
right  to  issue  small  notes. 

A  description  of  the  currency  of  Indiana,  in  September,  1843,  is  as 
follows:  The  State  Bank  paper  and  the  paper  of  the  specie-paying  banks  of 
Ohio  are  the  standard;  "scrip"  is  the  treasury  notes  of  the  State,  receivable 
for  dues  to  the  State,  but  not  bearing  interest  when  paid  for  taxes.  "Bank 
scrip"  is  a  State  issue  to  pay  the  State  Bank  for  advances  to  the  canal  con- 
tractors. "White  dog"  is  a  State  issue  to  pay  for  canal  repairs,  receivable  at 
its  face  and  interest  for  canal  lands  east  of  Tippecanoe.  "Blue  dog"  is  a 
State  issue  for  extending  the  canal,  receivable  for  canal  lands  and  canal  tolls. 
"Blue  pup"  is  a  shinplaster  currency  issued  by  the  canal  contractors  and 
redeemable  in  "blue  dog."  The  quotations  are,  "scrip"  85  to  90;  "bank 
scrip"  85;  "white  dog"  80  to  90;  "blue  dog"  40;  "blue  pup"— !* 

Illinois. — The  session  of  1840-41  was  called  two  weeks  earlier  than 
usual,  in  order  to  provide  for  the  interest  on  the  public  debt,  which  would 
fall  due  January  i,  1841.  A  party  fight  arose  over  the  question  whether  this 
was  a  special  session,  which  must  adjourn  in  order  that  the  regular  session 
might  commence  at  the  constitutional  time.  The  fate  of  the  banks  was  sup- 
posed to  depend  upon  this,  because  the  suspension  of  the  penalties  of  sus- 
pending specie  payments  had  been  extended  to  the  ' '  end  of  the  next  session. " 
The  democrats  succeeded  in  adjourning  the  called  session,  which  they  con- 
strued as  putting  an  end  to  the  banks.  The  Bank  of  the  State,  for  its  own  pur- 
poses, adopted  this  construction,  and,  assuming  that  it  was  under  compulsion 
to  redeem  at  once,  all  discount  and  loan  business  was  immediately  suspended, 
and  the  bank  refused  all  further  advances  to  the  State  or  redemption  of 


*  65  NUes,  69. 


THE  LIQ,UIDA  TION;  1842  TO  1845. 


407 


auditor's  warrants.  The  State  was  then  indebted  to  the  bank  $196,000. 
This  debt  was  increased  in  the  current  year  because  the  revenue  was  not 
equal  to  the  expenditure.  In  stating  these  facts  to  the  Legislature,  the 
president  of  the  bank  closed  his  document  with  a  declaration  of  the  purity 
of  the  motives  of  the  bank;  but  it  was  the  general  opinion  then,  and 
became  the  almost  universal  opinion  afterwards,  that  the  bank  had  intended 
to  coerce  the  Legislature  to  authorize  it  to  suspend  again,  in  the  February 
following,  the  bank  presented  a  memorial  to  the  Legislature,  setting  forth 
that  it  was  exposed  to  danger  and  harm,  finding  itself  the  only  bank  in  the 
western  country  which  had  resumed.  From  December  5th  to  February  ist, 
it  had  been  forced  to  redeem  $4S5,ooo  of  its  circulation.  It  pleaded  for  per- 
mission to  suspend  again  and  asked  outright  that  the  forfeiture  of  the  charter 
as  a  penalty  for  suspension  might  be  repealed,  as  impolitic  and  useless. 

The  refusal  of  the  Bank  of  the  State  to  redeem  the  auditor's  warrants  left 
the  Legislature  and  the  public  officers  unpaid.  "The  credit  of  the  State  at 
the  same  time  had  sunk  so  low  that  the  public  documents  could  not  be 
obtained  from  the  post  office  until  the  officers  themselves  became  personally 
responsible  for  the  postage."* 

The  minority  of  the  Committee  on  Banks,  reviewing,  in'1841,  the  history 
of  the  Bank  of  the  State,  thus  stated  the  result:  "At  the  first  suspension,  in 
1837,  its  circulation  was  only  $1.7  millions,  and  other  liabilities  about 
$1  million  more,  and  its  resources  were  equal  to  its  liabilities.  At  the 
second  suspension,  in  1839,  its  notes  in  circulation  exceeded  $2.1,  millions 
and  its  liabilities  exceeded  its  means  by  nearly  $400,000.  On  the  7th  of 
December,  1840,  after  the  last  suspension,  its  bills  in  circulation  exceeded 
$3.2  millions  and  its  liabilities  exceeded  the  available  means  by  about 
$1  million." 

In  July,  the  branch  of  the  State  Bank  at  Jacksonville  was  robbed,  but 
every  accommodation  note,  bill  of  exchange,  and  other  evidence  of  debt  in 
the  bank  was  destroyed  and  the  Icivs  were  cut  from  the  books  containing 
all  accounts  since  1 837.  It  was  discovered  that  the  perpetrator  was  the  teller, 
who  had  been  robbing  the  bank.f 

The  Bank  of  the  State  suspended  again  February  10,  1842.  February 
27th,  an  act  was  passed  condoning  this,  but  it  was  enacted  that  if  it  should 
suspend  again  for  a  longer  time  than  the  law  allowed,  it  should  forfeit  its 
charter.  At  the  same  time  it  was  given  permission  to  issue  ones,  twos,  and 
threes,  until  Janu;'fy  1,  1843.  Both  banks  were  required  to  resume  with  the 
other  banks  of  the  West  and  Southwest. 

"To  add  to  the  general  calamity  and  terror  of  the  people,  in  February, 
1842,  the  State  Bank,  with  a  circulation  of  $3  millions,  finally  exploded  with 
a  great  crash,  carrying  widespread  ruin  all  over  the  State,  and  into  the 
neighboring  States  and  Territories.  In  June  following,  the  bank  at  Shawnee- 
town    'followed   in   the   footsteps  of  its  illustrious    predecessor,'  leaving 


!^ 


H  i 


p  - ' 


I  w 


♦  Auditor's  Report,  1842. 


t  Gouge  ;  Journal  of  Banking,  40. 


4o8 


A  HISTORY  OF  BANKING. 


I  ) 


A\ 


i' ■  J  I 


the  people  almost  entirely  without  a  circulating  medium.  The  paper  of 
these  two  banks  had  been  at  a  discount  for  specie  ever  since  the  United 
States  refused  to  receive  it  for  the  public  lands,  and  to  make  the  banks 
depositories  of  the  public  moneys." 

"  That  which  contributed  the  last  spark  to  the  explosion  of  the  State 
Bank  was  the  course  of  some  of  the  State  directors,  who  were  contractors  to 
finish  the  northern  cross  railroad,  and  who  were  to  be  paid  in  canal  bonds, 
which  at  the  time  were  unsalable.  These  interested  parties,  joining  with 
others  in  the  directory,  established  it  as  a  principle  that  the  bank  could  not 
issue  an  excess  of  its  paper  whilst  in  a  state  of  suspension.  This  they  did 
to  get  loans  from  the  bank  to  carry  on  their  work  on  the  road ;  and  having 
obtained  money  themselves  upon  this  principle,  they  were  obliged  to  vote 
loans  to  all  others.  But  experience  soon  showed  that  the  principle  was 
false,  for  no  sooner  was  more  paper  put  into  circulation  than  could  be  sus- 
tained by  the  business  of  the  country,  than  the  bank  exploded.  It  may  be 
added  to  this  that  the  State  Bank,  to  obtain  favor  from  the  Legislature,  was 
compelled  to  make  loans  to  the  State,  and  to  advance  its  bills  for  auditor's 
warrants  for  a  large  amount  to  defray  the  ordinary  expenses  of  government; 
the  revenues  being  again  insufficient,  and  the  Legislature  afraid  to  increase 
the  taxes."* 

In  the  spring  of  1842,  the  Bank  of  the  State  allowed  its  notes  to  fall  to  so 
cents  on  §1.  As  half  the  revenue  of  1841  had  been  collected,  the  State 
officers  thought  that  fairness  required  that  the  remainder  of  it  should  be 
allowed  to  be  paid  in  the  same  currency.  Hence  this  paper  became  the 
only  medium  of  payment  to  public  creditors.  "Judges  and  other  officers  of 
government  were  obliged  to  take  it  at  par  for  their  salaries,  and  even  the 
interest  on  the  school  fund  could  only  be  paid  in  this  worthless  currency." 
The  State  also  had  to  give  its  six  per  cent,  auditor's  warrants  for  these  notes, 
which  it  could  only  use  again  at  the  rate  mentioned.  "The  Constitution 
expressly  prohibited  the  Legislature  from  reducing  the  salaries  of  the  Judges. 
The  object  of  this  prohibition  was  to  preserve  the  independence  of  the 
judiciary.  The  bank,  however,  found  no  difficulty  in  reducing  their  salaries 
more  than  one-half,  and  this  too  when  its  own  officers  were  receiving  liberal 
salaries  in  gold  and  silver."  The  taxpayers  now  hastened  to  pay  their 
taxes  for  1842  one  year  in  advance,  before  the  Legislature  could  take  any 
action  to  prevent  taxes  from  being  paid  in  this  depreciated  currency. 
According  to  the  existing  system  also  this  revenue  must  have  been  paid  into 
the  Bank  of  the  State.  The  Governor,  Auditor,  and  Treasurer,  acting  under 
power  which  had  been  given  by  law,  published  a  proclamation,  August  i^th, 
forbidding  the  payment  of  school,  college,  and  seminary  debts,  and  pablic 
revenue,  in  notes  of  the  Bank  of  the  State.  This  left  such  dues  payable  in 
auditor's  warrants,  of  which  there  were  enough  outstanding.  September 
1 2th,  they  published  another  proclamation,  warning  collectors  not  to  receive 


*  I'ord,  ii]. 


THE  LIQUIDATION;  1842  TO  1845. 


409 


depreciated  paper  at  more  than  its  specie  value.  In  reporting  their  pro- 
ceedings to  the  Legislature  they  add;  "It  is  folly  to  hope  tor  better  times 
while  the  channels  of  trade  are  choked  up  with  depreciated  paper.  So  long 
as  the  banks  are  continued  in  existence,  so  long  will  the  prosperity  of  our 
people  be  retarded.  They  have  almost  sucked  the  life-blood  out  of  the  State 
already.  Instead  of  bringing  in  foreign  capital  and  disseminating  it  amongst 
the  people,  they  have  been  effective  engines  in  the  hands  of  foreign  specula- 
tors to  drain  the  State  of  all  its  substantial  wealth.  Since  the  establishment 
of  these  institutions,  there  have  been  $10  millions  of  money  borrowed  and 
expended  amongst  the  citizens  of  Illinois.  Wealth  has  also  been  obtained 
from  immigration,  and  the  exportation  of  domestic  products,  and  yet  all  this 
has  disappeared  as  if  by  enchantment,  and  the  State,  in  1842,  finds  itself 
steeped  in  poverty  and  depending  for  a  currency  upon  depreciated  paper." 
The  implication  that  the  banks  were  to  blame  for  all  this  was  plainly  unjust. 

Under  a  resolution  of  the  Legislature  that  the  State  officers  should  nego- 
tiate with  the  two  banks  terms  for  the  separation  of  bank  and  State,  the 
Bank  of  the  State  proposed  to  yield  up  to  the  State  the  State  bonds  and 
State  scrip  which  it  held,  and  to  cancel  the  debt  of  the  State  to  it,  which 
was  nearly  $soo,ooo,  in  exchange  for  the  stock  owned  by  the  State.  The 
former  amount  exceeded  the  latter  by  $^2,404.  The  Bank  of  Illinois  agreed 
likewise  to  purchase  of  the  State  all  its  stock  in  that  Bank,  giving  evidences 
of  State  debt  for  it.  The  State  was  indebted  to  this  bank  $370,000,  $200,000 
of  which  was  for  an  advance  which  this  bank  had  made  at  the  urgent  request 
of  the  Fund  Commissioners  and  the  Governor,  that  it  would  advance  for  a 
few  months  the  amount  which  it  was  expected  to  borrow  in  New  York. 
The  latter  negotiation  fell  through  and  the  State  never  repaid  the  bank.  The 
facts  here  stated  show  most  distinctly  that  the  banks  were  by  no  means  the 
only  sinning  parties.  When  the  time  of  catastrophe  came,  the  Legislature 
and  all  the  civil  officers  turned  upon  the  banks  with  ferocity;  but  the  truth 
stands  out  in  the  clearest  light  that  the  banks,  blameworthy  as  they  were  in 
other  respects,  had  been  in  a  very  important  degree  helped  to  their  ruin  by 
the  internal  improvement  folly  for  which  the  civil  government  of  the  State 
was  responsible. 

Ford  says  that  if  the  "swindling  banks"  had  swindled  only  one-quarter 
as  much  as  they  were  swindled  by  the  State  and  by  individuals,  they  would 
have  been  perfectly  solvent.  In  regard  to  confidence,  also,  he  says  that  "if 
the  banks  owed  five  times  as  much  as  they  were  able  to  pay.  and  the  people 
owed  to  each  other  and  to  the  banks  more  than  they  were  able  to  pay,  and 
yet  if  the  whole  people  could  be  persuaded  to  believe  the  incredible  falsehood 
that  all  were  able  to  pay,  this  was  'confidence,'  which,  if  once  destroyed, 
could  only  be  restored  by  the  restoration  of  a  similar  general  delusion." 
His  description  of  the  state  of  things  in  1842  is  that  the  people  of  Illinois 
were  indebted  to  the  merchants.  They  in  turn  were  indebted  to  the  banks 
or  to  foreign  merchants.  The  banks  owed  everybody.  None  were  able  to 
pay. 


ik'J 


:V  :^ 


]vr 


mi 


')  i 


tUi 


410 


//  HISTORY  OF  BANKING. 


In  February,  1843,  the  Governor  informed  the  Legislature  that  the  two 
banks  had  surrendered  to  him  the  State  obhgations  and  that  he  was  ready 
to  burn  them  in  front  of  the  State-house. 

The  rate  of  tax  for  1843  and  the  following  years  was  fixed.  March  6, 
1843,  at  twenty  cents  on  $100,  payable  in  specie  or  auditor's  warrants,  and 
nothing  else.  The  interest  on  the  public  debt  was  suspended  for  1842  and 
1843.  The  Bank  of  the  State  was  put  in  liquidation  January  24,  1843.  It  was 
ordered  to  pay  out  its  specie  as  its  debts  were  called  for,  pro  rata,  on  a 
computation  of  its  debts;  certificates  receivable  for  debts  to  the  bank  to  be 
issued  for  the  residue.  The  Court  might  declare  the  charter  forfeited  and 
appoint  three  receivers,  four  years  being  allowed  for  winding  up.  Notes  to 
the  bank  were  to  be  renewed  on  the  payment  of  one-fifth;  the  property  of 
the  bank  was  not  to  be  sold  for  less  than  two-thirds  of  the  valuation  made 
by  three  appraisers.  The  specie  in  the  Bank  of  the  State  was  exempted 
from  execution.  This  act  provided  for  separating  bank  and  State.  Joint 
resolutions  were  passed  February  21,  1843:  "Whereas,  under  our  former 
policy,  public  works  were  commenced  and  prosecuted,  and  vast  and  extrav- 
agant schemes  of  internal  improvements  adopted,  utterly  disproportioned  to 
our  resources  and  means,"  and  debts  have  been  contracted  beyond  ability 
to  pay,  and  the  will  to  pay  is  doubted,  therefore  they  recognize  the  obligation 
to  fulfill  promises  and  detest  repudiation.  "Seduced  by  an  inflated  currency 
and  the  consequent  apparent  prosperity,"  these  debts  were  contracted;  but 
contraction  has  crippled  resources.  Inflation  "  had  its  origin  and  aliment  in 
the  over-action  of  the  credit  system,"  both  in  England  and  here.  Patience 
and  labor  are  needed,  with  time,  to  pay. 

The  charter  of  the  Bank  of  Illinois  was  repealed  and  it  was  put  in  liquid- 
ation March  3,  1843.  It  was  ordered  that  the  last  asset  to  be  realized  should 
be  the  debt  of  the  State  to  the  bank. 

The  charter  of  the  city  and  Bank  of  Cairo,  of  1818,  was  repealed  March 
4,  1843,  and  commissioners  were  appointed  to  wind  it  up,  paying  out  its 
specie  pro  rata  on  its  debt,  and  giving  certificates  for  the  residue.  The 
commissioners  were  also  to  inquire  whether  the  officers  had  broken  any 
laws  in  their  management. 

After  the  failure  of  the  Bank  of  Illinois  a  few  of  its  directors  secretly 
borrowed  of  it  $100,000  in  specie  with  which  to  purchase  bonds,  which  might 
be  delivered  to  the  State  in  discharge  of  the  debt  to  it.  The  bonds  were  worth 
thirty  cents  on  the  dollar.  Other  directors  discharged  their  stock  notes  with 
State  bonds.  The  Governor  hesitated  to  receive  these  bonds,  but  fearing 
that,  if  he  refused,  the  State  would  get  nothing,  he  made  a  conditional  con- 
tract to  receive  them  if  the  Legislature  should  approve.  The  first  action  of 
the  Legislature  in  1844  was  that  "it  would  be  better  to  lose  the  whole 
amount  which  the  bank  owed  the  State  than  countenance  in  the  least  degree 
the  villainy  of  its  officers;"  but  it  afterwards  allowed  the  bonds  to  be  taken 
at  48  cents  on  $1.* 

*  ForJ,  399. 


I'^t 


'} 


V; 


THE  LIQUIDATION;  1842  TO  1845. 


411 


The  state  of  thinfjs  at  the  end  of  1844  was  thus  described  in  the  Gover- 
nor's message:  "A  depreciated  currency  then  universally  prevalent  has 
been  withdrawn,  and  gold  and  silver  and  the  paper  of  solvent  banks  have 
been  substituted  in  its  place."  He  attributed  this  to  the  laws  which  had 
put  the  banks  in  liquidation,  and  which  had  "demonstrated  the  grand 
truths  which  have  been  doubted  by  many;  that  banks  are  wholly  unneces- 
sary to  supply  a  local  currency;  that  money  will,  in  the  main,  exist  and 
circulate  in  every  country  in  proportion  to  its  exchangeable  property;  and 
that  local  banks,  in  fact,  impede  the  ec]ualization  of  the  currency  and  mani- 
festly tend  to  derange  the  exchanges.  "  Banks  may  be  useful  in  commercial 
communities,  "but  if  former  experience  is  to  be  any  guide  for  the  future, 
we  must  be  satisfied  that  we,  in  the  State  of  Illinois,  are  better  without  them 
than  with  them.  *  *  *  We  ought  now  to  be  satisfied  that  without  a 
greater  and  more  general  punctuality  in  the  payment  of  private  debts,  it  will 
ever  be  impossible  to  administer  the  affairs  of  a  bank  with  safety  to  the 
people." 

The  trustees  of  the  old  State  Bank  of  Illinois,  in  1862,  advertised  a  final 
auction  of  its  remaining  assets.* 

This  State  also  had  a  loss  through  its  bankers.  Bonds  were  hypothe- 
cated to  McAlister  &  Stebbins,  which  were  lost  through  their  bankruptcy. 
An  attempt  to  make  an  adjustment  having  failed,  resolutions  were  adopted, 
February  27th,  1845,  that  those  bonds  should  not  be  receivable  for  debts  to 
the  State,  except  at  the  amount  which  the  State  had  realized  from  them,  26 
cents  on  $1,  with  interest  from  June  17,  1841. 

Delafield,  a  New  York  banker,  contracted  to  take  bonds  for  $583,000, 
but  paid  only  $170,000  on  them.  He  refused  to  return  the  bonds  even  if 
repaid.  The  State  claimed  that  the  sale  by  its  agents  had  been  illegal,  in 
that  the  bonds  had  been  sold  on  credit  and  for  less  than  par.  The  case  fur- 
ther resembled  the  Mississippi  case  in  that  the  State  won  five  per  cent,  by 
exchange  which  was  alleged  to  offset  the  loss  of  interest  in  making  it  run 
from  a  date  earlier  than  that  on  which  the  cash  was  paid  to  the  State.  The 
Court  held  that  the  agents  had  exceeded  their  powers;  that  the  sale  was 
below  par,  and  on  credit;  that  the  State  was  bound  in  faith  and  honor  to 
third  parties,  but  that  the  second  party  was  bound  to  scrutinize  the  creden- 
tials and  commission  of  the  agents.f  This  decision  was  made  in  1841  and 
gave  great  encouragement  to  the  Mississippi  repudiationists. 

Missouri. — The  Bank  of  the  State  of  Missouri  was  chartered  February  2, 
1837,  for  twenty  years;  capital,  §5  millions,  half  by  the  State;  the  private 
subscriptions  were  payable  in  specie  or  certificates  of  the  deposit  of  specie, 
in  deposit  banks  of  the  eastern  cities;  the  State  subscription  to  be  made  by 
bonds  payable  to  the  bank  after  twenty-five  years;  the  State  funds  to  be 
invested  in  the  bank;  no  notes  to  be  issued  until  seventy  per  cent,  of  the 
private  subscription  paid  up;  the  Governor  to  inspect  the  paid-up  capital; 


».  I 


*  17  Banker's  Mag«ine,  p  476. 


t  26  Wendell,  ii)i. 


)L^ 


412 


A  HISTORY  OF  BANKING. 


one  share  to  have  one  vote;  not  more  than  half  the  capital  to  be  employed 
in  dealings  in  bills  of  exchange;  no  loans  on  its  own  stock;  twenty  per 
cent,  penalty  for  suspension;  some  notes  to  be  made  payable  at  New 
Orleans  and  Baltimore,  Philadelphia  or  New  York,  and  they  may  be  made 
payable  at  any  respectable  bank  in  the  United  States.  The  bank  may  bor 
row  not  more  than  %<^  millions,  payable  in  live  years,  to  lend  on  mortgage 
in  Missouri;  this  last  fund  and  its  accounts  to  be  kept  separately;  to 
pay  the  State  annually  one-quarter  of  one  per  cent,  on  the  private  part  of 
its  capital  in  lieu  of  bonus  and  taxes;  lowest  nqte,  $io;  to  be  the  fiscal 
agent  of  the  State;  the  note  issue  not  to  exceed  double  the  capital  for  the 
first  live  years;  if  it  suspends,  to  forfeit  its  charter.  February  is.  1841,  an 
amendment  was  proposed  to  the  stockholders  to  repeal  the  provision  for 
branches  and  for  the  loan  to  be  lent  on  mortgage. 

Governor  Boggs,  in  his  message,  November  17,  1840,  boasted  that  the 
Bank  of  Missouri  had  resisted  the  second  suspension  in  1859,  "and  in  so 
doing  has  not  only  gained  honorable  distinction,  but  has  shown  how  easy 
it  is  for  the  banks  of  any  State  to  resist  these  suspensions."  He  complained, 
however,  of  chartered  insurance  companies  in  St.  Louis,  which,  although 
not  allowed  to  issue  notes,  circulated  the  notes  of  foreign  banks.  He  also 
complained  that,  although  there  were  heavy  penalties  for  the  circulation  of 
notes  under  $s,  "notes  of  lower  denominations  have  been  circulated  freel' 
ever  since  its  passage,  and  has  any  one  been  prosecuted  under  that  lav 
Not  in  a  single  instance  that  I  have  heard.  The  law  is  a  dead  letter  on  youi 
statute  book,  and  your  courts  either  cannot  or  do  not  enforce  it." 

In  1842,  the  Governor  complained  earnestly  of  the  issue  of  small  notes 
by  cities,  towns,  and  county  courts;  also  of  the  issues  made  by  unauthorized 
companies  or  companies  chartered  for  other  purposes;  also  of  the  great 
amount  of  depreciated  paper  from  other  States,  especially  from  Illinois.  After 
having,  in  1839,  with  the  approval  of  the  Legislature,  resolved  not  to  do 
business  with  the  paper  of  any  suspended  bank,  the  Bank  of  the  State 
changed  its  policy,  in  the  spring  of  1841,  and  began  to  use  such  paper  in  its 
transactions.* 

Resolutions  were  adopted  by  the  Legislature  in  February,  1843,  that  the 
Bank  of  the  State  ought  not  to  receive  the  notes  of  any  suspended  bank,  and 
also  ought  so  to  manage  its  business  as  never  to  suspend. 

An  issue  of  State  bonds  to  the  amount  of  $17^,000  was  ordered,  in  1842, 
in  order  to  pay  the  debt  of  the  State  to  the  bank,  and  a  committee  was  raised 
to  investigate  the  bank.  The  circulation  of  notes  under  $s  was  also  pro- 
hibited after  July  I,  1843,  and  after  January  i,  1844,  the  circulation  of  those 
under  $10;  after  July  1,  1843,  no  note  of  a  suspended  bank  was  to  pass  or  be 
dealt  in.  Contracts  in  such  notes  were  declared  void.  All  banking  privi- 
leges, except  those  of  the  bank  of  Missouri,  were  declared  unconstitutional 
and  void.     All  charters  of  companies  which  should  violate  this  law  were  to 


*  Governor's  Message,  1843. 


':t 


THE  UQ^UIDAitON;  1842  TO  184s. 


4'? 


be  annulled.  The  Bank  of  Missouri  iniKht  sell  the  depiviiiteJ  paper  held 
by  it. 

The  Bank  of  the  State  had  in  its  possession,  in  1H44,  §2,210,000*  of  the 
bonds  of  the  State  given  to  it  for  its  capital,  which  it  had  not  ne^;otiated  on 
account  of  the  depressed  condition  of  the  market  for  such  securities.  A 
legislative  committee  reported  that  if  11  should  sell  these  bonds,  as  it  might 
do,  "it  would  prove  most  disastrous  to  the  State  and  be  of  little  or  no 
benefit  to  the  bank;"  and  that  the  bank  had  as  much  capital  as  it  could  use. 
It  then  held  $22=1,020  in  notes  and  drafts  issued  by  the  Bank  of  Illinois,  of 
uncertain  value,  not  exceeding  so  cents  on  ijii.  The  dividends  received 
by  the  State,  and  the  bonus,  when  compared  with  the  interest  on  the  bonds 
of  the  State,  issued  for  the  stock  in  the  bank,  showed  a  deliciency  of 
$12, 85s.  The  educational  funds  which  had  been  invested  in  the  bank  stock 
had  secured  an  uncertain  and  irregular  income.  "The  history  of  the  bank 
proves  most  conclusively  that  it  never  can  be  made  a  source  of  revenue  to 
the  State."  The  bank  was  denounced  as  not  having  served  the  purposes 
of  its  creation,  especially  because  it  had  used  the  notes  of  the  suspended 
banks  instead  of  driving  them  out. 

By  a  joint  resolution  of  January  30,  iSi,,  the  bank  was  ordered  to 
deliver  all  unsold  State  bonds  in  its  possession  to  the  agent  appointed  to 
bring  them  to  the  legislature,  f 

The  Governor,  in  his  message,  November  18,  1844,  was  able  to  say: 
"The  circulating  medium  of  our  St.ite  has  been  greatly  improved,  and 
indeed  it  is  believed  that  at  no  previous  time  has  our  currency  been  in  a 
sounder  or  better  condition  than  at  present.  All  the  worthless  and  depre. 
ciated  paper  of  other  States  hascea.sed  to  circulate  among  the  people,  and  in 
its  place  may  now  be  seen  in  circulation  a  fair  proportion  of  silver  and 
gold." 

In  1855,  the  Bank  of  the  State  was  continued  until  1861. 

♦  This  is  the  figure  given  in  the  Treasury  Report  of  August  lo,  1846,  but  it  must  be  in  some  way  erroneous. 
t  Sec  pge  384.  note. 


!   \\ 

'i 

:  {'■'■ ' 
1  i 

'tf ,, 


mB»:^^^s^m&m 


\M 


iiS@g[i:M§lJaMiEg@§Eng§BllSi^G1)g;ftigii5Eaggll€gg[Hl§§^^G35^tH]^§^ 


m  ■■ 


PERIOD  v.  — 1843-5    TO    1863. 

Under  the  Independent  Treasury  System,  the  Regulation  of  Banking  and 
Currency  is  left  entirely  to  the  States.  The  Federal  Government 
Handles  only  Coin.  Banks  Organi{ed  under  General  Joint  Stock 
Laws  gradually,  and  to  a  great  extent  supersede  Chartered  Banks. 
In  the  Ohio  Galley  and  the  Northwest,  Banks  of  the  new  kind  run 
to  great  extravagance  and  abuse.  By  the  development  of  new  Insti- 
tutions of  Finance,  Commerce,  Transportation,  and  General  Industry, 
Banks  lose  Comparative  Importance. 


CHAPTER  XVI. 

The  Local  Bank  System.    The  Gold  Discoveries  and  Consequent  Expan- 
sion.     The   Commercial   Crises  of    1854  and  1857.      The  Aid 
Given  by  the  Banks  to  the  Federal  Government 
at   the  Beginning   of    the   Civil    Waf. 


§  I.  —  The  Local  Banks,  by  States;  184'=,  to  i860. 

HE  banking  capital  of  the  country  reached  its  lowest  ebb  in 
1846,  $iq6.8  millions.  The  bank  note  currency  was  at  its 
lowest  in  1843,  $58.5  millions.  It  cannot  be  doubted,  there- 
fore, that  the  liquidation  of  this  period  went  far  below  the 
normal  line  before  the  financial  system  of  the  country  could  be 
started  again  in  its  regular  activity.  From  this  time  until  the  civil  war  the 
country  depended  entirely  upon  the  local  banks.  After  the  re-enactment 
of  the  sub-treasury  system,  in  1846,  the  federal  government  went  its  own 
way,  using  specie  in  all  its  transactions,  and  giving  up  all  responsibility  for 
the  currency  used  by  the  people.  No  solution  of  all  the  great  currency  con- 
troversies of  the  last  fifteen  years  had  been  reached,  but  this  state  of  things 
was  brought  about  by  a  deadlock  between  all  the  factions  which  had  been 
developed  by  those  controversies.     No  one  of  them  could  carry  its  point. 


% 


THE  LOCAL  BANKS.  BY  STATES;  1845  TO  i860. 


4>5 


In  general,  it  may  be  said  of  all  the  banks  in  this  next  period,  that  they  had 
developed  to  a  new  stage,  as  compared  with  anything  in  the  previous  his- 
tory. They  ceased  almost  entirely  to  be  political.  This  was  in  part  a  conse- 
quence of  their  great  number  and  of  the  smallness  of  each.  They  consti- 
tuted, of  course,  a  strong  interest  in  each  State  whenever  they  were  united; 
but  in  federal  affairs  they  were  not  influential.  They  also  ceased  to  be  mys- 
terious. In  spite  of  their  opposition,  it  may  be  said  that  they  had,  in  this 
period,  been  brought  to  submit  to  the  visitorial  power  of  the  State  and  to 
make  public  statements  of  their  affairs.  Their  relative  importance  in  the 
community  also  fell  very  much  at  the  middle  of  the  century.  Other  finan- 
cial institutions  were  developed  by  the  side  of  them,  and  great  corporations 
were  formed  for  other  purposes,  which  grew  so  great  as  to  overshadow  the 
banks.  In  the  earlier  part  of  the  century,  they  had  been  the  only  possessors 
of  corporate  power.  In  the  older  parts  of  the  country  also  the  accumulation 
of  capital  had  now  become  so  great  that  the  old  banking  system  of  paper- 
money-mongering  was  out  of  date.  Not  that  that  system  was  given  up  by 
any  means  by  the  banks  in  the  country  towns.  The  banker's  art  consisted 
still,  to  a  great  extent,  in  getting  a  "good  circulation"  for  his  notes,  and 
knowing  when  to  put  them  out  and  when  to  take  them  in;  but,  at  least  in 
the  largest  centers,  the  accumulation  of  capital  was  such  as  to  feed  the 
deposits  and  give  the  banker  an  opportunity  for  a  higher  art  of  banking. 
In  such  places  the  circulation  sank  in  importance.  The  check  began  to 
supersede  the  bank  note,  and  the  predominance  of  the  currency  over  the 
affairs  of  men  began  to  decline. 

The  effects  of  the  financial  catastrophe  through  which  the  country  had 
passed  in  the  previous  period  were  seen  in  legislation  for  perhaps  a  decade, 
but  then  they  were  gradually  forgotten.  The  literature  of  this  subject  for 
fifty  years  had  repeated  the  same  inferences,  lessons,  and  warning;  but  all 
the  doctrines  of  currency  have  to  be  learned  over  again  apparently  every  ten 
or  fifteen  years,  if  indeed  they  are  ever  learned  at  all.  From  the  landing  of 
the  first  settlers  at  Massachusetts  Bay  until  to-day,  the  country  has  never 
enjoyed  ten  years  of  peace,  rest,  and  security,  with  an  established  and 
satisfactory  system  of  currency.  In  1852,  there  were  no  banks  in  Florida, 
Texas,  Arkansas,  Illinois,  Wisconsin,  Iowa,  Minnesota,  Oregon,  California, 
•and  the  District  of  Columbia.*  This  was,  however,  no  security.  The 
States  could  not  escape  from  a  repetition  of  the  woes  they  had  endured  by 
simply  renouncing  banks.  Iowa  was  flooded  with  notes  froi.  New  England. 
The  Governor  of  Arkansas,  in  18154,  complained  bitterly  that  that  State  was 
full  of  foreign  notes  and  counterfeits,  especially  small  notes,  although  it  had 
no  bank  and  was  determined  not  to  have  any,  and  had  legislated  vigorously 
against  small  notes  and  change  tickets.  The  coinage  laws  were  such,  until 
i8s3,  that  fractional  coins  of  the  federal  coinage  could  not  be  kept  in  circu- 
lation with  bank  notes  redeemable  in  gold.     There  was,  therefore,  a  constant 


•  Treasury  Report,  August  31,  1P52. 


, 


-v. 

H 

Li 
i    '■ 


h-  » 


f  m 


''if 
t 


i  . 

i 

4i6 


A  HSTORY  OF  BANKING. 


stimulus  to  the  issue  of  fractional  notes,  and  the  people  were  led  to  acquiesce 
in  it,  and  to  use  those  notes,  however  great  might  be  their  dislike  to  them, 
because  there  seemed  to  be  an  absolute  need  which  must  be  satisfied  in 
some  way. 

The  States  which  had  no  banks,  therefore,  generally  had  a  worse  currency 
than  those  which  had  banks,  with  the  additional  disadvantage  that  they 
could  not  control  it. 

Some  concensus  of  opinion  had  also  been  reached  in  regard  to  correct 
methods  of  banking.  Many  of  the  old  errors  and  abuses  were  no  longer 
practised  or  practicable.  When  it  came  to  details,  however,  the  maxims 
which  were  advocated  were  very  heterogeneous,  and  the  laws  which  were 
passed  in  the  different  States  were  often  very  contradictory.  Perhaps 
sufficient  attention  was  not  paid  to  the  great  variety  of  the  cases  which  must 
occur  in  banking;  to  the  flexibility  of  the  banking  system;  to  the  elasticity 
of  a  great  many  of  its  terms.  Although  we  speak  of  banks  as  a  single  and 
simple  category,  yet  we  know  that  banks  are  a  group  of  very  heterogeneous 
institutions.  A  bank  in  a  great  mer-'opolis,  dealing  with  merchants;  another 
in  a  manufacturing  town;  another  in  an  agricultural  village;  others  in  the 
region  of  the  great  staples,  cotton  and  grain;  and  another  on  the  Pacific 
coast  will  have  such  different  classes  of  business  that  they  must  have 
varieties  of  system  and  different  methods  and  processes,  so  that  the  maxims 
of  wisdom  for  them  all  cannot  be  the  same.  If  legislation,  therefore, 
attempts  to  lay  down  maxims  of  business,  it  is  very  sure  to  do  mischief. 

During  this  period  the  general  tendency  was  to  supersede  charters  by 
general  banking  laws,  and  the  free  banking  law  of  New  York  served  as  a 
model.  It  made  its  way  against  a  great  deal  of  opposition.  It  is  difficult  to 
see  in  the  history  of  the  chartered  banks  what  could  have  been  the  ground 
of  a  certain  feeling  which  existed  that  a  "chartered  institution"  presented 
great  safeguards.  In  Massachusetts,  although  a  free  banking  law  was 
passed  in  185 1,  no  bank  had  been  organized  under  it  in  1855.  In  the 
Western  States,  as  we  shall  see  presently,  it  was  proved  that  the  system, 
when  abused,  is  capable  of  the  very  worst  results.  Half  or  more  of  the 
States,  however,  had  adopted  it  before  the  civil  war. 

Massachusetts. — The  Suffolk  Bank  system  maintained  itself  in  New 
England  with  great  success.  In  1850,  the  average  daily  redemptions  were 
about  $750,000,  and  the  business  was  very  remunerative.  The  Governors 
of  Maine,  in  their  messages,  often  found  occasion  to  refer  to  the  system, 
which  they  almost  always  did  with  approval.  There  was  a  certain  coercion 
about  the  system  which  drove  all  the  banks  into  it,  because,  as  was  proved 
in  Maine,  the  notes  of  a  bank  fell  to  a  discount,  even  when  it  paid  specie  at 
its  counter  and  was  well  managed,  if  it  was  not  in  the  system.  The  Bank 
Commissioners  argued,  in  1842,  that  currency  which  was  not  available  at 
the  great  center  of  business  of  New  England  was  not  cash,  and  they  raised 
the  question  whether  the  three  banks  which  did  not  redeem  at  Boston  were 
not  under  a  moral  obligation  to  do  so. 


THE  LOCAL  BANKS.  BY  STATES;  184^   TO  i860.  417 

A  case  is  given  of  a  bank  in  Bangor  whicii,  in  i8s3,  secured  the  passage 
of  a  law  granting  a  bank  a  delay  in  tiie  redemption  of  notes  presented  at  its 
counter.  When  the  Suffolk  Bank  made  demands,  this  bank  used  the  delay 
by  means  of  its  agent  in  Boston  to  draw  specie  from  the  Suffolk  Bank  with 
which  to  meet  the  demand.*  We  also  hear  of  the  operation  of  the  system 
in  Vermont,  where  there  was  not  much  resistance  to  it  and  where  all  the 
indications  are  that  its  influence  was  good.  The  Commissioner  reported,  in 
1853,  the  case  of  the  South  Royalton  Bank,  which  was  in  failing  circum- 
stances, and  which,  when  the  agent  of  the  Suffolk  Bank  presented  $27,000 
for  redemption,  caused  the  notes  to  be  attached,  and  commenced  a  suit 
against  the  Suffolk  for  an  attempt  at  malicious  injury.  The  suit  was 
decided  in  favor  of  the  Boston  bank.  A  messenger  of  the  Suffolk  went  to 
the  Newmarket  bank.  New  Hampshire,  in  i860,  to  present  notes  for 
redemption  to  the  amount  of  $20,000.  They  were  paid  promptly,  but  $5,000 
was  at  once  attached  in  a  suit  for  illegal  annoyance. f 

The  statements  of  the  Connecticut  Commissioners  also  are  always 
favorable,  it  is  stated  by  them,  irt  1849,  that  the  total  bank  note  currency  of 
that  State  was  redeemed  at  the  Suffolk  every  sixty  days.  There  was  a  con- 
stant tendency,  however,  during  the  period  now  before  us,  for  the  Connecti- 
cut banks  to  turn  to  New  York  as  their  center,  because  the  business  of  the 
State  was  being  drawn  thither. 

In  1854,  the  redemption  business  of  the  Suffolk  Bank  had  grown  so 
large  that  it  employed  seventy  clerkj  and  it  was  scarcely  possible  to  main- 
tain accountability.  A  fund  was  created  on  behalf  of  the  clerks,  to  which 
losses  in  the  department  were  charged.  It  was  credited  with  85,000 
annually,  and  the  interest  of  the  surplus  over  losses  was  to  be  divided 
amongst  the  clerks.     The  losses,  however,  exceeded  the  fund. 

The  Suffolk  system,  however,  always  produced  irritation  in  the  country 
banks.  In  1855  they  obtained  a  charter  for  the  Bank  of  Mutual  Redemption, 
which  was  a  co-operative  association  of  themselves.  It  went  into  operation 
in  1858.  The  Suffolk  published  a  notice  that  it  would  not  continue  the 
system  of  redemption  after  November  30th.  After  some  friction  with  the 
new  bank,  however,  the  business  of  redemption  was  divided  between 
them.  The  reason  given  by  the  Suffolk  for  its  position  was  that  it  would 
not  consent  to  relax  the  stringency  of  the  system  in  respect  to  "its  main 
feature,  the  right  to  send  home  bills  for  specie."  "It  was  the  underlying 
principle  of  the  Suffolk  Bank  system  that  any  bank  issuing  circulation  should 
keep  itself  at  all  times  in  a  condition  to  be  able  to  redeem  it;  that  it  should 
measure  the  amount  by  its  ability  so  to  do;  and  that  the  exercise  at  any 
time  of  the  right  to  demand  specie  of  a  bank  for  its  bills  was  something  of 
which  the  issuing  bank  had  no  right  to  complain."! 

The  Bank  of  Mutual  Redemption  certainly  did  not  go  on  with  its 
business  on  such  conservative  principles  as  the  Suffolk.     It  violated  the  law 


\    f 


»!*    l! 


.         ,( 


*  Whitney,  48. 
27 


t  15  Banker's  Magazine,  890. 


X  Whitney:  Suffolk  Bank.  60. 


IR 


:«i 


4i8 


A  HISTORY  OF  BANKING. 


\  rv. 


by  pledging  its  bills  for  loans,  the  notes  not  to  be  put  in  circulation  for  a 
specified  time,  it  also  did  not  keep  the  specie  reserve  required  by  law. 
The  Bank  Commissioners,  in  1862,  were  forced  to  institute  suits  against 
it,  in  which  the  decision  on  all  the  important  points  was  against  the 
bank. 

In  discussing  the  point  at  issue  about  such  pledges  for  loans,  the  Com- 
missioners quoted  the  Superintendent  of  the  clearing  house  at  New  York, 
that  the  action  of  the  clearing  house  on  the  city  banks  had  proved  the  posi- 
tive principle  of  the  "restriction  of  loans  by  the  necessity  of  maintaining  a 
certain  average  of  coin  from  resources  within  the  banks;"  that  is  to  say, 
that  the  prescription  of  the  ratio  of  specie  which  the  bank  must  maintain 
would  limit  its  loans  and  control  its  business. 

It  will  not  have  escaped  the  notice  of  the  reader  that  the  Suffolk  system 
was  established  in  Massachusetts  only  after  several  earlier  attempts  had 
failed;  that  it  went  through  many  vicissitudes;  that  it  was  sustained  by  the 
fact  that  Boston  was  the  great  emporium  of  the  section  in  which  the  system 
was  operated;  that  other  attempts  to  set  up  the  same  system  met  with  but 
slight  success;*  and  that  perhaps  it  must  be  regarded  as  having  failed  at 
Boston;  at  least  that  when  it  was  superseded  by  the  national  bank  system, 
it  was  in  a  condition  of  partial  disruption. 

The  Legislature,  May  18,  1832,  appropriated  the  sum  of  $2, 500  annually 
for  five  years,  in  aid  of  the  efforts  of  any  association  for  the  suppression  of 
counterfeit  notes.  This  led  to  the  formation  of  such  an  'association  in  the 
following  February,  it  offered  prizes  for  the  invention  of  paper,  ink,  etc., 
which  would  make  counterfeiting  impossible,  and  exerted  itself  in  the  pros- 
ecution of  counterfeiters. 

The  Boston  clearing  house  began  operations  March  29,  1856. 

One  of  the  tentative  steps  towards  the  invention  of  clearing-house  certifi- 
cates was  the  agreement  of  the  banks  in  the  Boston  clearing  house,  in  the 
crisis  of  1857,  that  the  notes  of  the  banks,  in  a  determined  proportion  to 
their  capitals,  should  be  received  instead  of  specie  in  the  settlement  of  bal- 
ances.! It  was  said  that  the  New  England  Banks  had,  at  that  time,  sent 
their  circulation  to  the  West,  to  such  an  amount  that  they  would  have  been 
ruined  by  its  return,  but  for  the  united  protection  and  defense  of  the  Suffolk 
system.  J 

A  revision  of  the  banking  law,  in  1857,  provided  heavy  penalties  for 
passing  bogus  bank  notes,  including  uncurrent  and  worthless  bank  notes. 
The  humble  individual  must  therefore  take  the  notes  up  to  the  moment  of 
fiiilure,  and  must  not  pass  them  after  that  moment,  under  penalty  of  the 
House  of  Correction. 

In  the  following  year  the  unceasing  currency  problem  was  taken  in  hand 
again,  and  it  was  enacted  that  every  bank  must  hold  fifteen  per  cent,  of  its 
circulation  and  deposits  in  specie,  redemption  balances  being  credited  as 


*  See  Index  :  Suffolk  System. 


t  1 2  Banker's  Magazine,  410. 


%  14  Banker's  Magazine,  173. 


;ii 


173- 


THE  LOCAL  BANKS,  BY  STATES;  1845  TO  i860. 


419 


specie  in  hand,  and  circulation  was  limited  to  capital.  In  1863,  Amasa 
Walker  declared:  "1  know  that  the  banks  of  Massachusetts  are  almost 
entirely  regardless  of  the  law  which  requires  them  to  keep  fifteen  per  cent, 
in  specie."* 

In  a  banking  law  of  Maine,  of  1845,  one-half  of  the  capital  was  taken  as 
a  measure  of  what  might  be  considered  the  permanent  circulation  of  a  bank, 
which  would  not  be  presented  for  redemption,  and  banks  were  required  to 
hold  in  specie  one-third  of  any  issue  beyond  this  amount. 

The  charters  of  all  the  banks  in  Maine  expired  by  law,  October  i,  iSsy. 
Sixty-five  enumerated  banks  were  re-chartered,  April  14,  1857,  for  ten 
years,  subject  to  a  tax  for  schools  of  one  per  cent,  per  annum  on  their  capi- 
tal. The  relation  of  specie  reserve  to  circulation  was  kept  as  in  the  law  of 
1845.  The  reserve  in  the  Suffolk  Bank,  not  exceeding  §3,000,  might  be 
counted  as  in  the  vault,  but  at  least  five  per  cent,  of  the  capital  must  be 
actually  on  hand  in  specie. 

The  Bank  Commissioners,  in  1862,  stated  that  the  banks  found  that  their 
redemption  in  Boston  was  not  nearly  so  prompt  as  in  former  days.  The 
only  explanation  the  Commissioners  could  give  was  that,  in  the  unsettled 
state  of  public  affairs,  the  people  had  more  confidence  in  the  local  currency 
than  in  any  other  paper  currency. 

Connecticut. — Under  the  system  of  deposit-stock,  the  civil  list  fund  of 
the  State,  amounting,  in  1852,  to  $406,000,  was  deposited  in  banks;  likewise 
$359,900  belonging  to  the  school  fund.  The  income  for  that  year  was  at 
the  rate  of  eight  and  fifteen-sixteenths  per  cent. 

When  the  national  bank  system  was  established  the  question  of  the 
status  of  these  "qualified"  shares  became  serious.  The  Supreme  Court  of 
the  State  decided  that  a  bank  which  had  surrendered  its  State  charter,  as  a 
preliminary  to  becoming  a  national  bank,  must  pay  the  State  a  share  in  its 
surplus,  as  it  would  do  if  winding  up.  Another  bank,  which  had  somewhat 
hastily  included  the  State  in  its  articles  of  organization  as  a  national  bank, 
was  held  to  have  waived  its  chance  to  exclude  the  State,  and  it  was  obliged 
to  retain  the  State  in  the  national  bank.f  In  general  the  transition  to  the 
national  system  put  an  end  to  this  old  Connecticut  arrangement. 

A  general  banking  law  was  passed  in  this  State  in  1852,  after  a  hard 
struggle  of  two  years'  duration.  A  special  stress  was  laid  upon  the  pro- 
vision that  every  bank  must  be  one  of  discount  and  deposit,  and  not  simply 
of  circulation.  This  law,  however,  was  so  modified  in  1855  as  to  be  in 
eflfect  repealed,  by  converting  all  the  free  banks  into  joint-stock  banks  under 
a  general  law.  The  notes  were  to  be  surrendered  and  the  securities  taken 
up.  Circulation  was  limited  under  the  new  law  to  one  hundred  and  fifty 
per  cent,  of  the  capital.  In  case  of  failure,  the  note-holders  "shall  have  a 
lien  on  all  the  estate  of  said  corporation  of  every  description."  No  more 
banks    might  be  formed   under    the    law    of  i8s2.      June    26th,    all   the 


*  17  Banker's  Magazine,  8)9. 


t  34  Conn.,  205  ;  240.    (1867.) 


'■  t ' 

\  ' 

I:        \ 


420 


A  HISTORY  OF  BANKING. 


ru 


bunks  under  the  law  of  1852  were  compelled  to  accept  subscriptions  of 
charitable  and  educational  societies,  according  to  the  Connecticut  custom. 

The  crisis  of  1857  played  havoc  with  the  small  banks  of  Connecticut, 
especially  with  the  newly  established  free  banks.  The  failure  of  this  sys- 
tem in  Connecticut  and  New  Jersey,  adjacent  to  the  commercial  metropolis, 
is  a  noteworthy  phenomenon.  In  the  following  year  the  ratio  of  circulation 
to  capital  was  reduced  to  seventy-five  per  cent.  One-tenth  of  the  circula- 
tion and  deposits  must  be  held  in  specie,  but  a  deposit  for  redemption 
might  be  counted  as  a  part  of  this  requirement,  provided  that  the  actual 
specie  reserve  should  be  one-tenth  of  the  circulation.  It  was  also  forbidden 
to  pay  interest  on  deposits. 

The  Bank  Commissioners  reported,  in  i860,  that  the  banks  were  obey- 
ing the  law.  "Numbers  of  them  have  heretofore  been  reported  for  viola- 
tions of  law,  some  of  which  were  of  a  flagrant  character." 

During  the  summer  of  1861,  the  circulation  of  the  banks  of  Connecticut 
was  reduced  to  a  very  low  figure,  but  upon  the  collapse  of  the  western  cur- 
rency it  was  increased  for  use  in  the  western  States,  and  reached  a  greater 
amount  than  at  any  time  since  18^7."^ 

One  of  the  greatest  difficulties  with  which  the  New  England  States  had 
to  contend,  in  respect  to  banking,  was  the  repetition  of  the  old  fraud  by 
which  a  "speculator"  from  one  of  the  great  cities  bought  up  the  charter  of 
a  remote  and  obscure  country  bank,  in  order  to  make  an  issue  of  notes 
which  could  be  used  either  directly  or  indirectly  in  the  furtherance  of  his 
schemes.  Several  such  cases  occurred  in  Connecticut  between  1850  and 
i860.  They  quite  altered  the  aspect  of  banking  in  that  State,  where  there 
had  not  been  a  failure  of  a  bank  since  the  Eagle  Bank  failure  in  1825. 

New  York. — Upon  the  recommendation  of  the  Comptroller,  in  1845,  the 
State  issued  bonds  to  pay  the  creditors  of  the  banks  in  the  safety  fund  sys- 
tem which  had  become  insolvent,  in  order  to  relieve  "the  safety  fund 
system  from  the  odium  of  bankruptcy  under  which  it  has  been  suffering 
since  1842.  The  sound  banks  have  been  great  losers  by  the  swindling 
operations  of  some  of  their  associate  banks,  and  already  the  sum  of  $i,so2,- 
170  of  the  common  fund  of  all  the  banks  has  been  paid  on  account  of  the 
redemption  of  circulating  notes  of  nine  banks  which  have  failed." 

In  his  report  for  January,  1846,  the  Comptroller  gave  a  history  of  the 
safety  fund  and  free  banking  systems.  "The  loss  to  bill-holders,  on  the 
supposition  that  all  the  securities  had  been  stocks  of  this  State  and  bonds 
and  mortgages,  would  have  been  over  sixteen  per  cent.,  while  the  actual 
loss  has  been  nearly  thirty-nine  per  cent.  The  loss  to  the  first  holders  of 
the  safety  fund  notes  was  from  twenty  to  twenty-five  per  cent.,  and  there 
has  been  a  loss  of  about  four  years'  interest  to  subsequent  purchasers; 
whereas,  in  the  cases  of  the  free  banks  the  securities  were  sold  and  the 
proceeds  paid  to  bill-holders,  within  a  few  weeks  after  the  failure  of  the 

*  Bank  Commissioners,  1862. 


'rw 


THE  LOCAL  BANKS.  BY  STATES;  1845  TO  i860. 


421 


bank.  If  the  bank  fund  of  1829  had  provided  only  for  the  redemption  of 
circulating  notes,  as  is  the  case  with  the  act  for  free  banking,  ail  the  notes 
of  the  safety  fund  banks  which  have  failed  would  have  been  paid  at  par  by 
the  contributions  made  to  the  safety  fund  from  1831  to  184^;  and  if  the 
present  plan  of  registering  notes  had  also  been  in  operation,  the  result  would 
have  been  still  more  favorable,  as  fraudulent  issues  have  been  redeemed 
from  the  safety  fund  to  the  amount  of  $700,000."* 

in  the  Constitution  of  1846  it  was  enacted  that  no  banking  association 
might  be  created  except  under  a  general  law.  "The  Legislature  shall  have 
no  power  to  pass  any  law  sanctioning  in  any  manner,  directly  or  indirectly, 
the  suspension  of  specie  payments,  by  any  person,  association,  or  corpo- 
ration, issuing  bank  notes  of  any  description."  All  circulating  notes  must  be 
registered  and  secured.  Stockholders  in  any  association  issuing  circulating 
notes  were  to  be  "individually  responsible  to  the  amount  of  their  respective 
share  or  shares  for  all  its  debts  and  liabilities  of  every  kind  contracted  after 
January  i,  1850."  Note-holders  were  to  have  preference  over  all  other 
creditors. 

The  amount  of  circulation  of  the  free  banks  still  exceeded  the  value  of 
the  securities  deposited,  in  1847,  by  $127,077,  although  the  securities  were 
so  rapidly  appreciating  that  the  margin  was  vanishing. 

The  abuse  of  shaving  one-half  of  one  per  cent.,  by  putting  a  bank  away 
in  some  obscure  village  in  the  country,  having  been  invented,  was  continued. 
The  Comptroller,  in  1847,  complained  of  it,  and  gave  a  number  of  cases. 
Consequently  the  act  of  April  12,  1848,  was  passed,  by  which  it  was  enacted 
that  the  business  must  be  done  at  the  domicile  of  the  bank,  and  that  every 
return  must  bear  an  oath  that  this  act  had  been  complied  with.  The  same 
act  provided  that  only  the  stocks  of  the  State  of  New  York  bearing  six  per 
cent,  interest  might  be  deposited  in  the  Banking  Department,  never  being 
taken  above  par  or  above  the  market. 

The  act  of  1837,  fixing  the  limit  of  circulation  for  the  safety  fund  banks, 
v/as  modified,  in  1848,  so  that  those  which  had  more  than  8200,000  miglit 
have  a  circulation  equal  to  their  capital.  The  Comptroller  urged  that  the 
two  systems,  the  safety  fund  and  the  free  banking  system,  ought  to  be 
reduced  to  one  by  a  choice  between  them.  The  amount  of  State  bonds 
which  had  been  issued  in  loans  to  the  safety  fund  was  $900,828.  The 
average  rate  at  which  bank  notes  of  suspended  bond-deposit  banks  were 
redeemed,  down  to  1848.  was  67.71  per  cent. 

The  law  of  April  s,  1849,  was  an  elaborate  act  to  put  in  force  the  new 
constitutional  provisions.  It  became  the  constitution  of  the  banking  system 
of  the  State,  until  the  national  bank  system  came  in.  The  safety  fund  banks 
were  allowed  to  go  over  into  the  free  bank  system.  United  States  stocks 
might  be  deposited  as  security  in  the  ratio  of  one-half     The  liability  of  a 

*  The  Bank  of  Buffalo  was  entitled  to  $100,000  circulation.  Up  to  January  1,  1844,  $433, 339  of  its  notes  had  been 
redeemed.    (Comptroller's  Report,  1844). 


t 


'*!ill 


(  i 


% 


l!       I' 


1 


t  . 


!    i 


liii 


A     1 


'1 


422 


A  HISTORY  OF  BANKING. 


i* '  i  f. 


11 


stockholder  was  fixed  at  double  the  amount  of  his  stock.  The  receiver  01 
a  broken  bank  was  to  make  a  dividend  on  what  he  had  realized  at  the  end 
of  six  months,  and  then  to  proceed  against  the  stockholders,  under  this 
liability,  for  a  deficiency  in  the  amount  requisite  to  redeem  the  circulation. 
It  was  also  enacted  that  all  banks  and  bankers  under  this  law  should  be 
institutions  of  discount  and  deposit  as  well  as  of  circulation ;  but  as  no  pen- 
alty was  prescribed,  the  Comptroller,  in  1850,  reported  that  this  provision 
had  been  evaded. 

"It  was  not  until  1849  that  the  general  bank  law  became  a  fixed  fact  in 
the  minds  of  the  capitalists  of  this  State."  Until  that  time  they  tried  to  use 
it  to  create  unsound  institutions,  or  banks  of  mere  circulation.  In  1851,  it 
was  required  that  country  circulation  should  be  redeemed  at  New  York, 
Albany  or  Troy,  at  one-fourth  of  one  per  cent,  discount.  "This  act  literally 
closed  the  door  to  illegitimate  banking  in  this  State."* 

In  iSsi  two  Wall  Street  banks  had  their  nominal  place  of  issue  at  Tom's 
River,  New  Jersey.  Beskles  the  two  banks,  the  village  consisted  of  four 
stores  and  a  public  house.  The  landlord  of  the  public  house  was  president 
of  one  bank,  and  the  keeper  of  one  of  the  stores  president  of  the  other.  It 
took  three  days  to  go  there,  present  demands,  and  return  to  New  York. 
The  New  Jersey  law  allowed  a  bank  three  days'  grace.  The  bank  could 
therefore  send  to  New  York  for  specie  after  the  demand  was  made.f 

In  185 1,  it  was  found  that  the  duties  of  the  Comptroller  were  too 
numerous  and  various,  and  the  Banking  Department  was  organized 
independently  under  a  Superintendent. 

The  Metropolitan  Bank  was  started  in  1851,  in  order  to  introduce  the 
Suffolk  system,  the  old  troubles  with  the  country  notes  being  still  expe- 
rienced. The  circular  of  the  Metropolitan  Bank  set  forth  that  it  would 
receive  all  New  York  State  country  bank  notes,  crediting  them  on  the  fol- 
lowing day  at  one-fourth  of  one  per  cent,  discount,  and  all  New  England 
notes,  good  at  the  Suffolk,  at  one-fifteenth  of  one  per  cent,  discount,  pro- 
vided that  the  par-redeeming  banks  should  keep  a  deposit  of  not  less  than 
$5,000  each,  paying  seven  per  cent,  on  any  over-draft  with  respect  to  that 
sum,  and  the  Metropolitan  paying  four  per  cent,  for  any  excess  beyond  it.|. 

An  attempt  was  made  in  iSss  to  establish  a  co-operative  system  amongst 
the  New  York  country  banks  for  the  redemption  of  their  notes,  but  it  failed. 
They  did  not  propose  to  put  the  currency  at  par,  but  to  keep  it  at  the  legal 
limit  of  one-fourth  of  one  per  cent,  discount.  § 

In  the  New  York  system  of  redemption,  the  legal  limit  of  one-quarter  of 
one  per  cent,  was  not  taken  as  a  maximum  of  toleration,  but  as  a  standard 
of  perfection,  although  there  were  some  country  banks  which  established  a 
par  redemption  for  their  notes.  The  difference  between  par  redemption 
and  discount  redemption  was  thus  stated  by  the  Supreme  Court  of  Pennsyl- 


♦  Superiatendent,  1859. 


t  6  Banker's  Magazine,  160. 
%\o  Banker's  Magazine,  30O  ;  $70. 


i  6  Banker's  Magazine,  in. 


THE  LOCAL  BANKS,  BY  STATES;  1843  TO  i860. 


42} 


vania:  "In  the  one  case  the  notes  are  redeemed  for  the  bepcfit  of  the  holder 
without  profit  to  the  bank;  in  the  other,  at  the  cost  of  lie  holder  for  the 
benefit  of  the  bank."*  The  money  of  account  of  New  York  was  one-quar- 
ter of  one  per  cent,  below  that  of  New  England. 

The  New  York  clearing  house  began  operations  October  11,  i8=i3,  in  the 
basement  of  14  Wall  street.  Its  first  effect  was  to  force  some  contraction  of 
bank  loans.  The  same  effect  was  produced  by  the  requirement  by  law  of 
weekly  bank  statements,  which  went  into  effect  August  1st.  Both  had  the 
obvious  effect  of  forcing  the  banks  to  higher  and  more  uninterrupted  degrees 
of  banking  soundness  and  security. 

Individual  bankers  doing  business  under  the  general  banking  law  were 
forbidden,  by  a  law  of  i8s4,  to  sell  the  business.  They  were  required,  upon 
discontinuing,  to  pay  back  the  notes  and  take  up  the  securities. 

The  Superintendent,  in  that  year,  said  that  it  was  not  believed  that  the 
mortgages  in  the  guarantee  fund  of  the  free  banks  had  brought  more 
than  seventy-five  percent,  of  their  face  value,  when  it  had  been  necessary  to 
sell  them.  He  inferred  that,  for  this  reason,  and  also  because  they  were  not 
capable  of  prompt  realization,  mortgages  were  not  properly  available  as 
security  for  currency.  A  year  later  he  said  that  there  had  been  only  a  single 
instance  in  which  the  circulation  of  a  failing  bank  had  been  redeemed  in  full 
at  par,  when  the  circulation  was  secured  by  bonds  and  mortgages,  and  not 
any,  when  it  was  secured  by  the  stocks  of  other  States  than  New  York. 
The  use  of  mortgages  as  a  basis  of  circulation  was  abolished  April  29,  1863. 

Any  bank  was  required,  by  a  law  of  April  30,  iSsy,  if  it  held  more  than 
$10,000  in  the  notes  of  another  bank,  to  present  them  as  often  as  once  a  week, 
in  the  exercise  of  its  right  to  demand  redemption.  Each  bank  must  also 
elect,  and  make  known  its  choice,  whether  it  would  take  the  redemption  of 
its  neighbor's  notes  at  the  counter  or  at  the  redemption  agent's.  This  law 
was  complained  of  as  giving  banks  days  of  grace.  Its  constitutionality  was 
disputed,  as  it  was  signed  more  than  ten  days  after  the  Legislature  adjourned. 

From  1844,  the  railroads  were  constantly  in  the  market,  borrowing. 
Money  could  hardly  ever  be  had  outside  the  banks  for  six  per  cent.f 

The  discovery  of  gold  in  California  and  Australia  at  the  middle  of  the 
century  produced  the  same  effect  on  the  whole  civilized  world  which  is 
produced  locally  by  an  issue  of  irredeemable  paper  money,  with  the  differ- 
ence that  it  was  limited  in  its  amount,  and  in  the  rate  of  its  introduction  into 
the  circulatory  system,  by  the  difficulty  of  production,  and  also  that,  having 
once  been  introduced,  it  was  not  again  withdrawn.  The  trade  to  Califor- 
nia was  exceedingly  speculative.  A  cargo  might  arrive  when  the  market 
was  bare,  or  it  might  arrive  with  a  number  of  others.  The  increase  of  price 
fell  first  upon  the  things  which  the  miners  wanted.  The  new  gold  passed, 
in  the  first  place,  into  the  hands  of  the  mercnants  dealing  in  these  goods. 
From  them  it  passed  to  the  producers  of  the  same.     From  them  to  those 


" 


.     i 


i        i.' 


*  2i>  IVnnsylvaiiia,  451. 


t  Martin  ;  Boston  Stock  Market,  17. 


424 


A  HISTORY  OF  BANKING. 


who  supplied  their  wants,  in  this  case  the  European  producers  of  articles  of 
luxurious  consumption  ;  and  so  on  in  ever  widening  circles,  the  intluence 
being  less  as  the  distance  was  greater.  At  every  step  it  might  be  accumu- 
lated and  serve  to  transfer  capital  into  investments,  such  as  mills,  factories, 
and  railroads,  every  one  of  which  felt  the  stimulus  of  a  rise  in  prices  promis- 
ing gain.  The  rise  in  prices  became  marked  in  18S3.  In  the  first  years  of 
the  sixth  decade  the  harvests  in  England  were  good  and  the  rate  of  dis- 
count low.  Then  followed  the  Crimean  war  and  a  bad  crop  in  18s  3,  the 
result  of  which  was  a  speculation  here  in  wheat,  and  extensive  railroad 
building  in  the  West. 

The  market  report  in  August,  1852,  was:  "Capital  is  accumulating 
rapidly  in  the  large  cities  and  is  met  by  a  large  demand  in  behalf  of  various 
improvements,  public  and  private,  and  for  business  purposes.  Enterprise  is 
now  under  full  headway.  Every  portion  of  the  country  is  teeming  with 
new  undertakings  requiring  a  heavy  outlay  of  capital  and  labor,  and  indi- 
cating rapid  strides  in  wealth  and  prosperity."* 

The  amount  of  American  stocks  held  in  Europe  was  estimated  in  that 
year  at  $261  millions. f  This  investment  of  European  capital  increased  very 
rapidly  during  the  following  years. 

The  railroad  construction  in  the  Ohio  States  was  checked  for  a  time  by 
the  Schuyler  frauds  which  were  discovered  in  July,  1854.  The  president  of 
the  New  York  and  New  Haven  Railroad  was  likewise  transfer  ai^ent, 
whereby  he  was  enabled  to  issue  spurious  stock  to  the  amount  of  $2 
millions.  The  genuine  stock  was  only  three  millions,  and  the  total  cost  of 
the  road  only  about  five.  Frauds  were  also  discovered  in  the  Hariem  and 
Vermont  Central,  consisting  likewise  in  over-issues.  These  occurrences 
were  well  calculated  to  produce  a  panic  in  railroad  shares,  and  to  restrict 
the  new  enterprises  which  relied  on  an  active  demand  for  their  shares. 

The  financial  troubles  of  the  summer  of  1854  were  spoken  of  as  the  most 
serious  since  1837.  "The  abstraction  of  capital  to  a  large  extent  for  the 
construction  of  long  lines  of  railroad  in  Ohio,  Indiana,  Illinois  and  other 
States  has  hampered  this  market  for  a  year  past.  Such  has  been  the  press- 
ing demand  for  capital  for  these  new  concerns  that  railroad  paper  h::s  been 
amongst  the  heaviest  in  the  market.  Some  companies  have  paid  as  high  as 
one  and  a  half  or  two  per  cent,  per  month  for  a  series  of  months,  and  that 
too  on  large  sums.  "J  A  very  great  reduction  in  bank  circulation  took  place, 
especially  in  the  Ohio  States,  Kentucky,  Maryland  and  South  Carolina. § 

In  the  United  States  the  money  market  and  share  market  were  feverish 
and  unsettled  from  the  panic  of  1854  until  that  of  1857.  There  is  no  real  in- 
terval between  the  two. 

It  does  not  appear  that  there  was  any  bank  inflation  on  the  new  gold. 
From  1855  to  1856  the  circulation  decreased  as  well  as  the  deposits,  while 


*  7  Banker's  Magazine,  251. 


t  7  Banker's  Magazine,  252. 
§  9  Banker's  Magazine,  665. 


X  9  Banker's  Magazine.  1 ,8. 


V. 


THE  LOCAL  BANKS.  BY  STATES;  1845  TO  i860. 


435 


the  specie  and  specie  funds  ;:lso  underwent  a  slight  decrease.  The  New 
Yorii  City  banlis  generally  had  more  specie  than  circulation,  while  there 
were  on  all  sides  the  greatest  evidences  of  prosperity.  It  is  true  that  the 
number  of  banks  in  the  city  increased  from  twenty-live  in  184c)  to  lifty-two 
in  1853,  and  that  the  number  did  not  go  above  tifty-five  before  the  war. 
The  capital  also  increased  from  %2^  millions  in  1849  to  $44  millions  in  18^3, 
and  §39  millions  in  1837;  but  it  went  on  steadily  increasing  to  $69  millions 
in  i860.  The  deposits  also,  which  were  $30.9  millions  in  1851,  steadily  and 
rapidly  increased  to  $70.6  millions  in  Marcii,  18S7;  but  in  June,  iSsS,  they  were 
$74.8  millions  and  kept  on  increasing  until,  in  December,  iSbi,  they  were 
$91.4  millions.  There  was,  therefore,  no  bank  inflation  at  New  York  in  the 
special  period  preceding  the  crisis  of  1857.  The  justest  view  of  the  case  is 
that  there  had  been  an  expansion  of  prosp<'rity  and  enterprise,  stimulated  by 
the  new  gold,  which  had  gone  on  with  such  rapidity  that  a  crisis  was  pro- 
duced in  its  development  Comparing  1857  with  1849,  the  imports  had 
increased  one  hundred  and  thirty-three  per  cent. ;  the  bank  capital,  one 
hundred  and  sixty  per  cent. ;  the  bank  loans,  one  hundred  and  forty  per 
cent.,  and  the  bank  deposits  two  hundred  per  cent.*  The  leading  features 
of  this  crisis  were  that  it  was  world-wide,  very  sharp  and  sudden,  and 
quickly  over.  The  crisis  was  a  very  severe  one,  but  it  was  only  a  halt  in  a 
course  of  rapidly  advancing  prosperity.  It  may  be  added  that  it  was  also 
especially  a  banking  crisis, 

A  definite  discrimination  is  intended  here  between  the  terms  crisis  and 
panic.  When  certain  forces  have  been  set  in  operation  in  the  commercial 
organization  by  antecedent  acts  or  occurrences,  their  consequences  must 
follow.  They  may  combine  in  such  a  way,  or  advance  to  such  a  pitch,  that 
a  "crisis  "  is  produced.  A  "  panic  "  is  properly  psychological.  It  is  a  wave 
of  emotion,  apprehension,  alarm;  it  is  more  or  less  irrational;  it  is  superin- 
duced upon  the  crisis,  which  is  real  and  inevitable,  but  it  exaggerates,  con- 
jures up  possibilities,  takes  away  courage  and  energy.  It  is  not  possible  to 
preach  down  a  crisis.  It  is  a  fact  and  is  there;  it  must  run  its  course  and  be 
accounted  with  for  all  there  is  in  it.  The  soberest  man  appreciates  the  facts 
the  best.  It  is  useless  to  preach  "confidence"  to  him  in  the  face  of  the 
facts  which  infuse  suspicion  and  warning.  A  panic  can  be  partly  overcome 
by  judicious  reflection,  by  realization  of  the  truth,  and  by  measurement  of 
facts.  The  one  thing,  however,  which  kills  a  financial  panic  is  a  prompt  and 
fearless  offer  by  the  banks  to  grant  loans  to  all  solvent  customers  at  a  rate 
such  as  the  market  calls  for.  A  man  who  is  told  that  he  can  have  no  help  on 
any  terms  falls  into  a  panic,  seeing  no  escape  from  failure;  one  who  is  told 
that  he  can  have  a  loan,  if  he  cannot  get  along  without  it,  but  at  some  enor- 
mous rate,  recovers  from  panic  and  goes  home  to  see  if  he  cannot  manage  some 
other  way  rather  than  pay  such  a  rate.  Banks,  however,  in  order  to  be  able 
to  apply  this  remedy,  must  be  strong  and  suffer  from  no  panic  themselves. 

•  (2  Banker's  Magazine,  429. 


•     ( 

I       i 


ill'' 


^  ' 


'•M 


42(-> 


A  HISTORY  OF  BANKING. 


i!: 


t  tl 


It  was  expected  in  the  spring  of  i8s7  that  the  crop  in  England  would  be 
poor,  and  a  speculation  began  for  a  rise  in  grain.  It  turned  out,  however, 
that  the  crops  were  all  good,  and  the  price  fell.  The  mercantile  failures 
were  numerous,  even  in  the  first  months  of  the  year,  but  a  commercial  crisis 
was  so  little  e.xpected  that  the  discount  rate  was  lowered  in  July.  It  was 
this  failure  to  foresee  the  crisis  and  to  prepare  for  it  which  allowed  it  to  get 
such  headway  that  it  became  necessary  to  suspend  the  bank  act  and  issue 
uncovered  notes. 

There  were  a  few  failures  here  at  the  beginning  of  August.  August  24th, 
the  Ohio  Life  and  Trust  Company  failed,  and  a  few  days  later  the  Mechanics' 
Banking  Association  at  New  York.  The  Pennsylvania  and  Maryland  banks 
suspended  immediately  afterwards.  A  panic,  however,  did  not  at  once 
develop. 

The  Ohio  Life  and  Trust  Company  had  been  in  excellent  credit.  McCul- 
loch  says  that  its  failure  was  like  a  thunderbolt  from  a  clear  sky,  and  that 
its  New  York  agents  had  speculated  with  its  funds  and  ruined  it,  while  the 
directors  in  Cincinnati  thought  it  absolutely  sound.  The  real  trouble  with 
it,  however,  and  with  the  other  banks  also,  was  that  they  had  advanced 
funds  for  railroad  building,  which  at  the  time  was  particularly  active  in  the 
Ohio  States.  This  passive  debt  of  the  Ohio  Company  was  stated  at  $s 
millions.  Towards  the  end  of  September,  the  pressure  upon  the  country 
banks  in  New  York  to  redeem  their  notes  was  very  great,  and  they  began 
to  return  their  circulation  and  take  up  their  bonds  in  order  to  execute  their 
redemptions.  If  notes  of  any  bank  were  presented  at  the  redemption 
agencies  at  the  Metropolitan  and  American  Exchange  Banks  when  there 
were  not  funds,  those  notes  were  immediately  thrown  out  and  the  bank 
was  posted  in  all  the  newspapers  of  the  State  as  having  failed. 

"  The  suspension  was  preceded  by  a  desperate  struggle  between  all  the 
banks  themselves,  and  distrust  and  fear  of  currency  was  more  apparent  among 
them  than  with  the  public  generally."  The  banks  began  a  savage  contrac- 
tion, being  in  no  position  whatever  to  meet  the  crisis  by  bold  loans  to  sol- 
vent borrowers.  It  was  afterwards  said,  with  great  good  reason,  that  the 
panic  was  entirely  unnecessary  and  need  not  have  occurred  ;*  but  the  banks 
put  all  the  pressure  on  their  loans  to  merchants  because  they  could  not  recall 
those  to  the  railroads.  The  loans  were  $95  millions  January  5,  1856:  !=!'j_ 
millions  August  8;  i8i^7;  but  were  reduced  to  $101  millions  on  the  .th  of 
October.  At  that  time  the  rate  for  loans  had  advanced  so  fir  i  '  ,  ^ould 
not  be  quoted.     Loans  were  not  to  be  had,  and  during  the  ,ig  vveek 

the  bank  loans  were  reduced  to  $67  millions,  with  a  run  01  0  banks  for 
gold,  which  carried  the  specie  stock  down  from  $13.5  millions,  on  th(  19th 
of  September,  to  $7.8  millions  on  the  17th  of  October;  but  this  was  '>m- 
paratively  unimportant.  The  circulation  of  the  city  banks  fluctuated  hai  Jly 
$1.5  millions.    The  merchants  organized  a  run  on  the  banks  for  the  deposits. 

•  12  Banker's  Magazine,  430  ;  780, 


for 

111- 

"y 

sits. 


THE  LOCAL  BANKS,  BY  STATES;  iS^-}   TO  /^wJ. 


427 


"  In  New  York  City  it  became  a  question  of  the  suspension  of  the  banks  or 
of  the  merchants  as  a  body.  Capital  in  the  shape  of  deposits,  for  the  first 
time  in  the  history  of  this  country,  and  I  think  I  may  say  in  the  world,  sided 
with  the  business  men  and  against  the  banks.  The  great  concentrated  c.ill 
loan  was  demanded,  and  in  such  amounts  that  a  single  day's  struggle  ended 
the  battle;  and  the  banks  weiil  down  before  a  storm  they  could  not  post- 
pone or  resist.  *  *  *  Till' most  sagacious  banker,  in  his  most  apprehen- 
sive mood,  never  for  a  moment  deemed  it  possible  to  have  a  gener.il  sus- 
pension in  this  State  from  a  home  demand  for  coin ;  while  coin  itself  was  at 
little  or  no  premium  with  the  brokers."* 

The  banks  of  New  York  City  all  suspended  but  one — the  Chemical.  The 
suspension  became  general  except  in  the  Ohio  Valley,  at  New  Orleans,  in 
South  Carolina,  and  some  scattered  exceptions  elsewhere.  Fourteen  railroad 
companies,  amongst  which  were  some  of  those  which  are  now  the  strongest 
in  the  world,  suspended  payments.  The  failures  were  put  at  S,'-3.  with 
liabilities  for  $299.8  millions.  A  meeting  of  representatives  of  the  banks  was 
held  October  13th,  at  which  it  was  resolved  to  send  a  committee  to  Albany 
to  ask  the  Governor  to  call  an  extra  session  of  the  Legislature  "to  consider 
the  necessity  of  enacting  some  law  to  give  relief  in  the  present  financial 
emergency."  The  Governor  excused  himself  from  action.  The  Constitu- 
tion, in  fact,  explicitly  forbade  anything  which  the  Legislature  might  have 
proposed  to  do.     Resort  to  the  judici;iry  was  more  successful. 

IXiring  the  run,  October  14th,  two  one-hundred  dollar  notes  were  pre- 
sented at  the  Bank  of  New  York,  with  a  demand  for  specie,  which  was 
refused.  Application  was  made  to  a  Judge  of  the  Supreme  Court  for  an 
injunction,  which  was  refused,  on  the  ground  that,  although,  during  a  period 
of  general  suspension,  a  bank  may  refuse  to  redeem  its  notes,  yet  that  does 
not  prove  that  it  is  insolvent,  since  it  may  have  assets  greatly  in  excess  of 
its  liabilities.  This  was  in  accordance  with  an  agreement  which  the  Judges 
had  entered  into,  and  it  was  in  line  with  earlier  decisions  interpreting  State 
laws  which  provided  for  an  injunction  when  note  redemption  was  refused. f 
Nevertheless,  it  was  nothing  less  that  a  coup  d'etat.  The  Constitution  had 
explicitly  provided  against  any  suspension  of  specie  payments,  on  any  pre- 
text whatever,  and  this  constitutional  provision  now  proved  as  ineffective 
as  all  the  old  legislative  enactments.  The  situation  was  somewhat  para- 
doxical. It  had  been  hoped  that  the  severe  constitutional  prohibition  would 
prevent  the  banks  from  ever  putting  themselves  in  a  position  to  suspend. 
They  had  come  into  that  position.  It  was  said  that  the  terror  of  forfeiture 
was  what  made  them  adopt  their  policy  of  self-protection,  to  the  ruin  of  the 
mercantile  world,  although  the  construction  of  the  bankers  was  that  the 
public  was  in  a  panic  lest  the  banks  should  all  be  wound  up  in  case  they 
suspended. t  This  was  the  knot  which  the  Judges  cut,  and  everybody  was 
forced  to  acquiesce  in  their  action.     It  was  a  most  conspicuous  failure  of 


< 


1.1    •■ 


/fl 


'  :  i:  fe 


*  Superintendent,  1857. 


t  5  Cowen,  lOi  ;  6  Cowen,  211. 


X  16  Banker's  Magazine,  628, 


ii 


428 


A  HISTORY  OF  BANKING. 


nn\r%\ 


legal  regulation  of  banks,  and  illustrated  that  dilemma  of  legislation  in  which 
a  restriction  to  be  effective  must  be  intensely  severe,  and  if  it  is  intensely 
severe,  proves  impracticable  when  it  is  needed. 

During  this  crisis  the  banks  of  New  York  City  enclosed  the  country  bank 
notes,  of  which  they  held  about  $7  millions,  in  packages  of  $5,000  each,  and 
passed  these  packages  to  each  other  in  the  settlement  of  balances.  This 
was  another  of  the  tentative  steps  towards  the  later  device  of  clearing-house 
certificates.  The  country  banks  were  called  upon  to  redeem  these  notes 
Kovember  7th. 

The  Ntw  York  City  banks  resumed  in  the  middle  of  December.  It  is 
said  that  they  hud  never  refused  to  redeem  their  notes.  The  other  banks  of 
the  North  and  Last  generally  followed  them.  The  Pennsylvania  banks  did 
not  rL'smiie  until  April  following,  and  those  of  the  West  and  South  delayed 
much  longer. 

This  crisis  well  illustrated  the  most  subtle  difficulty  there  is  in  the  analysis 
of  commercial  crises.  The  rate  of  interest  properly  is  governed  by  the  supply 
and  demand  of  loanable  capital.  At  some  point,  which  cannot  be  determined 
by  analysis,  in  a  time  of  crisis,  that  rate  comes  to  be  a  rate  for  the  money  of 
account,  whatever  it  may  be,  and  it  coires  to  depend  on  the  supply  and 
demand  of  that  money.  It  u  generally  saic  that  this  results  from  a  failure  of 
credit;  and  that  is  true;  if  by  credit  is  meant  the  holding  open  of  credits  for 
some  tirrje,  until  other  credits  on  the  other  side  are  presented  to  cancel  them. 
In  the  crisis  this  arrangement  is  suspended  for  various  reasons.  There  is 
need  and  desire  to  touch  cash.  This  is  greatly  increased  by  the  panic  ele- 
ment, if  that  comes  in.  A  double  operation  is  therefore  performed,  both 
parts  of  which  are  harmful.  There  is  a  holding  of  the  currency,  which  is 
the  solvent  of  debt.?,  just  at  the  timj  that  there  is  a  call  for  a  greater  supply 
than  is  required  in  ordinary  times.  In  i8s7  there  was  no  stringency  in  the 
capital  market  antecedent  to  the  crisis.  The  rate  for  capital  was  not  high. 
The  same  was  true  of  England.  Confining  our  attention  to  New  York,  we 
note  that  there,  as  this  crisis  advanced,  on  account  of  the  attitude  adopted 
by  the  banks,  the  rate  for  current  cash  advanced  until  it  could  not  be  quoted. 
There  was  none  to  be  had  in  the  market.* 

One  safety  fund  bank  failed  before  1857  when  there  was  nothing  in  the 
fund  with  which  to  redeem  its  notes,  and  three  more  during  the  crisis. f 

The  circulation  in  the  State  was  50.67  per  cent,  of  the  hank  capital  in 
1850.  The  ratio  steadily  declined  until  1858,  when  it  was  22.02  per  cent. 
In  18=59  it  was  24. 18  per  cent.  The  Superintendent  argued  from  this  that 
the  note  issue  was  declining  in  importance.! 

The  New  York  Clearing  House  Association  recommended  its  members, 
in  March,  1858,  to  hold  a  reserve  of  twenty  per  cent,  on  cash  liabilities, 
exclusive  of  circulation.  § 


'I  'v 


*  In  1893  resort  was  had.  h  the  sjme  case,  to  illegal  issu  . 
i  Report,  1859. 


t  Superintendent,  i8s8. 
§  13  Banker's  .^l.^gazi^e,  574. 


THE  LOCAL  BANKS.  BY  STATES;  184s  TO  i860. 


429 


The  banks  of  New  York  State  succeeded  at  last  in  establishing  an  "  As- 
sorting House"  at  Albany,  by  agreement,  on  the  5th  of  April,  i8s8.  All 
the  notes  were  to  be  redeemed  at  one-fourth  of  one  per  cent,  discount  and 
paid  on  the  following  day  at  Albany,  Troy,  or  New  York.* 

in  January,  1862,  the  Canal  Department  of  New  York  had  $2.s  millions 
on  deposit  in  banks.  Of  this  amount  nearly  $0.5  million  was  unavailable,  of 
which  $130,000  was  represented  as  hopeless. f 

When  the  last  safety  fund  charter  had  expired,  in  1866,  there  remained 
$129,499  of  circulation  of  the  last  four  banks  which  had  failed  still  outstand- 
ing. After  paying  the  last  of  the  State  bonds  issued  to  meet  the  responsi- 
bilities of  the  fund,  there  was  sufficient  in  the  fund  to  pay  forty  per  cent,  of 
those  notes.  So  few  of  them  were  presented,  however,  that  the  remaining 
sixty  per  cent,  was  paid  on  those  which  were  presented.  A  final  residuum 
of  $13, 144  was  paid  into  the  State  Treasury.  J 

The  New  JiiRSKY  Constitution  of  1844  required  a  three-fifths  vote  in  each 
House  for  granting  or  renewing  bank  charters,  which  were  also  to  be  limited 
to  twenty  years'  duration. 

In  i8s>  the  bank  circulation  was  made  a  preferred  debt,  for  which, 
according  to  each  charter,  all  the  assets  were  pledged;  also  each  stockholder 
was  liable  for  double  his  stock,  and  the  directors  were  individually  liable 
without  limit.  It  was  reported,  in  18^7,  that  all  the  banks  under  the  Gen- 
eral Banking  Law  of  February  27,  1850,  were  trying  to  get  special  charters. 
The  free  bank  system  had  fallen  into  disfavor  in  New  Jersey,  and  was  being 
abandoned. 

March  7,  1866,  the  Comptroller  reported  that  thirteen  batiks,  organized 
under  the  General  Banking  Law,  were  winding  up;  six  banks,  having  ob- 
tained charters,  were  winding  up  business  under  the  General  Banking  Law; 
seven  were  being  settled  by  decrees  from  the  Court  of  Chancery. 

Pennsylvania. — . .  general  act  for  the  regulation  of  banks  was  adopted 
April  16,  1850.  It  was  a  codification  of  the  old  rules  of  banking  without  a 
safety  fund  or  stock  deposit.  It  provided  for  a  Suffolk  system,  with  centers 
at  Philadelphia  and  Pittsburgh,  and  contained  a  very  stringent  and  compre- 
hensive section  against  the  circulation  in  Pennsylvania  of  notes  for  less  than 
$5  issued  by  anybody  outside  of  that  State. 

A  great  number  of  suits  were  brought  against  the  Pennsylvania  and 
Pennsylvania  and  Ohio  Railroad  Companies,  i;i  1834,  for  passing  foreign 
bank  notes  under  five  dollars.  These  suits  were  sustained  by  private  indi- 
viduals, and  penalties  to  the  amount  of  $30,000  were  recovered.  The  Legis- 
lature passed  an  act  to  unite  the  suits  into  one  for  each  company,  on  which 
the  penalty  \vould  be  $500,  but  the  Governor  vetoed  it.  Th^  companies 
then  caused  the  prosecutors  to  be  indicted  for  conspiracy,  and  they  •  .ere 
convicted  and  imprisoned.  j5 


K 


■  I 


.,    '  ■ 


1:          ' 

ii 

i  1 

! 
1 

Sjl 

'   !  'i 

n 

!  i 


*  12  Banker's  Magazine,  9jq. 


t  16  Banker's  Magazine,  qnb. 
J  9  Banker's  Magazine.  487. 


%  Superintendent,  1867. 


430 


A  HISTORY  OF  BANKING. 


I'    I 


The  old  Bank  of  Pennsylvania,  founded  in  1793,  failed  and  went  into 
bankruptcy  in  August,  1857.  Its  stock  was  very  largely  held  by  charitable 
companies  and  other  associations  of  a  like  character,  by  trustees,  guardians, 
and  women.  Charges  of  criminal  conduct  against  the  officers  were,  upon  a 
trial,  not  sustained. 

In  1858  the  banks  of  Philadelphia  tried  to  enforce  a  redemption  of  country 
notes;  all  notes  of  banks  east  of  the  AUeghanies  being  redeemed  at  the 
Farmers  and  Mechanics*  Bank  at  one-fourth  of  one  per  cent,  discount.  The 
banks,  however,  became  restive  under  this  arrangement  in  May,  1859,  and  it 
came  to  an  end.  In  1861  an  attempt  was  made  again  to  enforce  it  by  law, 
reviving  the  old  law  which  had  been  repealed  by  the  relief  legislation  of 
1857.* 

The  Philadelphia  clearing  house  was  established  in  February,  1858. 

The  South  escaped  from  the  crisis  of  1857  comparatively  unscathed. 
Business  was  said  to  be  healthy  in  that  section,  and  there  had  been  little 
wild  speculation.  The  worst  effects  of  the  panic  were  not  felt  there  until 
after  January  i,  1858.  Virginia  was  to  some  extent  excluded  from  this 
description.! 

Virginia. — A  great  number  of  banks  were  chartered  in  Virginia  in  185 1, 
1852,  1853,  and  1856,  with  a  system  of  stock  deposit  on  the  New  York  plan. 
March  18,  1856,  a  law  was  passed  to  sell  all  the  State  stock  in  banks.  It 
was  re-affirmed  April  3,  1858,  with  the  expression  of  a  determination  to 
separate  bank  and  State.  An  attempt  was  made  to  obtain  a  more  uniform 
currency,  April  2,  1858,  by  a  provision  that  the  branches  should  redeem  at 
the  parent  bank,  and  that  the  independent  banks  should  have  a  redemption 
agency  at  Richmond.  The  banks  were  all  required  to  resume  on  the  ist  of 
May  or  pay  one-half  of  one  pei  cent,  penalty  on  that  day,  and  the  same 
amount  monthly,  retrospectively  from  the  ist  of  January. 

Governor  Wise,  in  1857,  held  that,  by  the  experience  of  that  State,  it 
was  demonstrated  "that  an  issue  of  bank  notes  is  a  heavy  burden  to  a  State 
without  a  center  of  trade,"  because  all  currency  tends  towards  such  centers. 
"  This  makes  the  issue  ot  bank  paper  immensely  costly  to  a  purely  agricul- 
tural people." 

Another  large  group  of  new  banks  were  organized  in  i860. 

The  banks  of  North  Carolina  appear  to  have  been  prosperous  about 
1850.  The  Bank  of  the  State  paid  eight  and  one-half  per  cent,  dividend  in 
1849,  and  the  Bank  of  Cape  Fear  six  per  cent. 

By  a  law  of  18'jo-i,  each  bank  with  its  branches  was  regarded  as  a  unit 
against  every  other  bank  with  its  branches.  If  one  makes  demands  on 
another,  it  may  be  paid  in  its  own  obligations  or  those  of  any  of  its  parts. 
Any  person  presenting  a  demand  for  redemption  may  be  required  to  state 
whether  he  is  acting  on  behalf  of  any  bank.  If  he  refuses  to  answer,  he 
may  be  refused.     Payments  under  this  act  are  to  be  made  in  the  notes  of 


'  13  Banker's  Magazine,  314,  996;  18  ditto,  S35. 


+  13  Banlcer's  Magazine,  639. 


THE  LOCAL  BANKS,  BY  STATES;  184$  TO  i860. 


43" 


the  particular  branch  presenting  a  claim,  so  far  as  the  paying  bank  has 
them.  This  law  was,  however,  at  once  decided  unconstitutional  so  far  as 
it  applied  to  the  exchange  of  notes.* 

In  the  following  years  a  number  of  small  banks  were  chartered,  and  the 
old  large  banks  were  re-chartered  until  1880  or  1885. 

February  16,  1835,  an  act  was  passed  "to  more  effectually  secure  a  com- 
pliance with  the  terms  of  their  charters  by  the  banks  chartered  at  the  present 
session  of  the  General  Assembly."  The  president  and  cashier  are  required 
to  file  a  certificate  before  the  bank  begins  that  the  capital  has  been  paid  in 
in  specie,  subject  to  a  fine  of  from  $1,000  to  $3,000  for  neglect;  and  of  from 
$1,000  to  $_3, 000,  with  imprisonment  for  not  more  than  three  months,  for 
certifying  falsely. 

There  was  strong  rivalry  between  the  Bank  of  the  State  and  the  Bank  of 
Cape  Fear.  At  the  session  of  1856-7,  they  both  obtained  new  legislation  for 
the  extension  of  their  charters,  the  State  subscribing  largely  to  an  increase  of 
capital  in  each.  The  former  was  allowed  to  issue  down  to  $1;  the  latter 
down  to  $3.  It  appears,  however,  that  the  extension  of  the  Bank  of  the 
State  was  not  accomplished.  At  the  session  of  1858-9,  its  liquidation  was 
provided  for  and  a  new  "  Bank  of  North  Carolina"  was  chartered,  on  the 
old  plan  of  the  banks  of  the  States.  The  literary  and  other  funds  of  the 
State  were  to  be  placed  in  its  capital.  It  contained  no  novelty  except  that,  in 
case  of  suspension,  besides  twelve  per  cent,  penalty  to  the  note-holder,  it 
was  to  pay  the  State  a  fine  of  four  percent,  on  its  circulation  at  the  last 
return,  as  long  as  the  suspension  lasted.  By  an  act  of  November  20,  i860, 
all  the  banks  were  relieved  of  the  penalties  of  suspension,  but  they  must  not 
curtail  while  suspended. 

A  "  Real  Estate  Bank"  was  proposed,  in  1866;  the  capital  stock  to  be 
not  less  that  $10  millions  nor  more  than  $20  millions.f 

South  Carolina. — In  a  speech  on  the  bank  question  by  William  Gregg, 
in  the  Legislature  of  South  Carolina,  in  December,  1857,  we  find  an  inter- 
esting description  of  the  methods  of  banking  in  the  South  at  that  time.  If 
he  had  a  charter  in  South  Carolina  for  a  bank  with  a  capital  of  half  a  mil- 
lion, he  would  first  have  $2  millions  of  bank  notes  printed;  a  large  por- 
tion of  them  fives.  "The  next  move  would  be  to  get  them  in  circula- 
tion. I  would  get  my  neighbors  to  swap  off  enough  of  them  for  Charleston 
bills  to  bring  me  specie  funds.  J  My  next  object  would  be  to  appoint  agents 
in  Lexington  and  Louisville,  Ky.,  to  supply  horse  dealers  and  get  drafts  on 
Charleston,  then  in  Nashville,  Memphis,  and  Huntsville,  Tenn.,  New  Orleans, 
Mobile,  Montgomery, — in  fact,  in  all  the  towns  where  money  is  paid  for 
cotton.  At  these  points  my  bills  should  be  freely  put  out  for  drafts  on  New 
Orleans;  when  collected,  to  be  invested  in  Northern  exchange.  When  the 
Northern  funds  matured  I  would  purchase  through  an  agent  the  notes  of  all 
the  men  in  South  Carolina  that  I  knew  to  be  good,  as  well  as  those  of 


((, 


'  i' 


M       f 


I       )' 


*  n  Iredell,  Law,  73. 


1 10  Banker's  Magazine,  90;. 


t  See  page  37. 


'    ! 


43^ 


A  HISTORY  OF  BANKING. 


ms\ 


>i. 


Georgia  and  other  States  of  similar  character.  1  would  shave  as  deep  as 
possible  and  get,  I  suppose,  in  quiet  times  from  ten  per  cent,  to  eighteen 
per  cent. ;  in  tight  times,  from  fifteen  per  cent,  to  thirty  per  cent.  Dur- 
ing the  dull  months  of  the  year,  when  my  funds  could  not  be  so  employed, 
I  would  loan  to  New  York  bankers  on  call  at  seven  per  cent,  and  take  good 
stocks  for  collateral.  The  shaved  notes  I  would  call  domestic  exchange; 
my  call  loans,  reserved  specie  funds.  *  *  *  My  great  object  would  be 
to  deal  in  domestic  exchange."  If  a  borrower  could  not  draw  on  New  York 
or  Charleston,  he  would  cause  him  to  draw  on  himself,  payable  in  Colum- 
bia, and  discount  the  draft  at  six  per  cent.,  and  a  half  per  cent,  exchange 
per  month.  If  a  crisis  came,  he  would  hold  out  until  he  was  petitioned  to 
suspend  and  "relieve  the  community."  "I  would  then  close  the  vaults 
and  refuse  to  pay  the  bank's  debts,  in  order  to  save  the  people  from  bank- 
ruptcy and  ruin,  which  I  had  helped  to  bring  upon  them." 

The  Governor  of  South  Carolina,  in  1849,  recommended  the  winding  up 
of  the  Bank  of  the  State,  on  general  grounds  of  the  impolicy  of  bank  cur- 
rency and  of  the  union  of  bank  and  State.     He  added : 

"I  also  desire,  in  this  place,  to  express  my  settled  conviction,  that  the 
Bank  of  the  State  was  founded  on  a  false  and  pernicious  principle;  that  to 
grant  to  the  members  of  a  community  almost  exclusively  devoted  to  rural 
pursuits  unusual  facilities  for  commanding  money,  is  to  inflict  on  them  and 
their  posterity  unmitigated  evil;  that  the  more  numerous  and  difficult  the 
obstacles  in  the  way  of  receiving  bank  accommodations  by  that  class  the 
greater  their  contentment  and  the  more  certain  their  success  in  their  vocation." 

The  banks  which  suspended,  18S7,  had  to  pay  monthly  at  the  rate  of 
five  per  cent,  per  annum  on  their  circulation.  The  one  which  had  to  pay  the 
most  was  the  Bank  of  the  State,  owned  entirely  by  the  State,  which  thus 
paid  a  penalty  to  itself  under  its  own  laws.  This  the  Charleston  "  Courier  " 
thought  was  very  absurd.* 

The  Comptroller,  in  i860,  blamed  Alexander  Hamilton  for  introducing 
the  paper  system.  He  thought  that  the  banking  system  of  that  State  was 
founded  on  a  much  more  stable  basis  than  the  credit  system  of  the  North. 
Of  the  latter  he  said :  "As  soon  as  the  Southern  prop  is  removed,  it  is  doomed 
inevitably  to  topple  to  the  earth."  This  is  what  comes  of  accustoming  peo- 
ple to  hear  all  the  time  what  Hezekiah  Niles  used  to  call  "high  pressure  " 
statements. 

The  Governor  was  ordered,  by  the  act  of  September  15,  1868,  to  take  all 
the  assets  of  the  Bank  of  the  S'.^e  of  South  Carolina,  which  had  long  been 
closed,  and  sell  them  and  dep^  it  the  proceeds  in  the  treasury.  This  act 
was  held  void,  as  impairing  the  obligation  of  contract.  The  State  was  a 
stockholder  and  had  no  right  to  sieze  the  assets,  which  must  be  held 
for  the  creditors,  t  In  Dabney  vs.  the  Bank  of  the  State  of  South  Carolina,  J 
the  Court  quoted  the  report  of  an  investigating  committee  of  the  Legislature 


*  12  Banker's  Magazize,  504. 


t  1  South  Carolina,  03. 


X  3  South  Carolina,  165.    (1871.) 


'  W'i 


THE  LOCAL  BANKS.  BY  STATES;  1845  TO  i8bo. 


433 


in  1868;  the  bank  "really  and  in  fiict  had  no  independent  existence  from 
the  State,  but  was  really  subject  to  and  controlled  by  it.  Truly,  it  had  a 
legal  entity  for  business  purposes,  but  was  really  nothing  more  nor  less  than 
the  State  engaging  in  banking  business."  It  was  held  that  the  fire  bonds 
were  not  a  prior  lien  on  the  assets  of  the  bank,  but  that  these  were  distribut- 
able for  all  debts  alike.  The  bank  was  held  not  to  be  liable  for  the  fire 
loan  bonds  of  the  State,  issued  at  the  same  time,  for  a  part  of  the  rebuilding 
fund ;  also,  the  holders  of  the  notes  of  the  bank  held  them  at  their  face 
against  the  bank,  no  matter  for  what  price  they  were  bought.  In  the  absence 
of  a  special  contract,  depositors  of  Confederate  currency  were  held  to  be 
entitled  only  to  what  it  was  worth  when  deposited.  "The  moneyed 
relations  between  the  State  and  the  bank  might  well  be  said  to  have  identi- 
fied them."    The  bank  was  in  liquidation  in  1871.* 

Georgia. — We  find  laws  of  1847  and  i8s4  to  "commute,"  as  it  was 
called — that  is,  to  fund  in  bonds  of  not  less  than  $500  each,  the  small  bonds 
which  were  issued  for  the  circulation  of  the  Central  Bank  ofGeorgia.f  This 
State  also,  in  1851,  was  once  more  legislating  against  issues  by  unauthorized 
persons  or  corporations,  with  heavy  fines  and  imprisonment  as  a  penalty. 
The  Bank  of  the  State,  in  1850,  with  a  capital  of  $1.5  millions,  had  a  circula- 
tion of  $1.8  millions;  specie,  $489,409;  bills  of  exchange,  §1.15  millions; 
discounts,  $1.2  millions.  In  1852,  the  banks  were  allowed  to  issue  notes 
under  §5  for  twenty  per  cent,  of  their  capital,  instead  of  5  per  cent,  as  before. 
This  State  also  multiplied  banks  between  1853  and  1856.  In  1857,  the  act 
of  1840  to  enforce  specie  payments  was  suspended  for  a  year,  in  spite  of  the 
Governor's  veto.  The  banks  must  resume,  however,  at  the  time  set,  or  pay 
ten  per  cent,  damages  and  interest  for  non-redemption.  If  a  note-holder 
sues  the  bank,  it  must  redeem  all  the  notes  he  has  or  forfeit  its  charter. 

The  Governor  recommended,  in  1859,  ^^'-^^  *'  suspension  of  specie  pay- 
ments by  a  bank  should  be  made  a  misdemeanor  on  the  part  of  the  chief 
officers,  and  punished  by  penal  servitude  for  between  five  and  ten  years. 
The  Legislature  was  not  prepared  to  go  so  far,  but  a  very  stringent  law  was 
passed  without  penal  features,  giving  the  note-holder  summary  remedies. 

The  tax  collectors  of  Alabama  appear  to  have  been  speculating  on  the 
depreciation  of  the  currency,  for  an  act  was  passed  February  4,  1846,  to 
prevent  them  from  doing  so. 

It  was  enacted  March  4,  1848,  that  no  foreign  corporation  should  do  dis- 
count banking  in  Alabama,  unless  it  did  so  by  the  use  of  gold  and  silver  or 
of  notes  issued  under  the  authority  of  the  State.  Notes  discounted  contrary 
to  this  law  were  to  be  void.  The  Southern  Bank  of  Alabama  was  chartered 
February  12,  1850;  capital,  $834,000;  two-fifths  being  reserved  for  the 
State,  as  the  Constitution  required ;  but  it  appears  that  there  was  no  inten- 
tion that  the  State  should  subscribe.  On  the  same  day  a  free  banking  law 
on  the  New  York  plan  was  adopted.     The  lowest  note  was  set  at  $5,  which 


('    I 


If,    ; 


.,    f" 


!'  .     I 


I      \ 


i  8 

m 


m 


28 


•  3  South  Carolina,  401. 


t  See  patjc  5()8. 


: 


4J4 


A  HISTORY  OF  BANKING. 


was  changed  in  1852  to  $2.  At  that  time,  also,  the  Southern  Bank  was 
authorized  to  make  its  circulation  thrice  its  capital.  Then  also  the  Northern 
Bank  of  Alabama  was  chartered,  like  the  Southern  Bank.  In  1854,  the  low- 
est denomination  of  note  was  set  at  $1,  and  the  Central  Bank  of  Alabama 
was  chartered  on  the  same  plan  as  the  two  already  existing.  In  1856,  the 
Commercial  Bank  of  Alabama,  another  one  on  the  same  plan,  was  likewise 
chartered,  over  a  veto.  December  19,  1857,  the  suspension  of  specie  pay- 
ments by  the  Central  and  Commercial  Banks  was  legalized,  on  condition 
that  they  should  pay,  January  i,  1858,  as  much  as  $50,000  of  their  notes  in 
the  State  treasury,  with  interest  at  eight  per  cent,  from  that  date;  and  on 
April  1st  as  much  as  $200,000.  After  January  i,  185c),  they  must  issue  no 
notes  under  $5.  They  must  resume  February  15,  1858,  and  by  November 
15,  1858,  they  must  get  and  thereafter  always  keep  on  hand  coin  to  the 
amount  of  one-third  of  their  circulation.  If  they  do  not  comply  with  these 
conditions,  they  shall  forfeit  their  charters.  The  Governor  shall  cause  the 
notes  to  be  presented,  and  shall  institute  proceedings  as  provided  by  the 
charter.  If  they  accept  these  conditions  and  give  bonds  to  fulfill  them,  their 
notes  shall  be  received  by  the  State.  The  Eastern  Bank  of  Alabama  was 
chartered  February  8,  1858,  on  the  plan  of  the  great  banks  already  founded, 
and  on  the  same  day  the  capital  of  the  Southern  Bank  was  increased 
$500,000,  of  which  half  was  a  surplus  on  hand,  distributed  in  a  stock 
dividend.  February  8,  i860,  all  the  chartered  banks  were  allowed  to  issue 
down  to  $1.  Another  large  bank,  the  Bank  of  Alabama,  was  founded 
February  13,  i860,  for  the  stockholders  in  the  South  and  North  Alabama 
Railroad. 

The  Northern  Bank  of  Mississippi  failed  in  1857.  It  had  no  circulation  in 
that  State,  but  some  in  Arkansas  and  a  great  deal  in  Texas.  The  only  bank 
then  remaining  in  Mississippi  was  the  Bank  of  Manchester  at  Yazoo  City, 
which  made  no  reply  to  the  Treasury  Department  when  it  v/as  requested  to 
send  in  a  report.* 

A  proposition  for  a  free  banking  law  in  this  State,  in  1854,  obtained  no 
support,  t 

Louisiana. — An  assessment  of  $6  per  share  was  levied,  in  1847,  by  the 
liquidator,  for  scenteen  years,  on  the  stock  of  the  Planters'  Association, 
which  tax  was  construed  by  the  Court,  in  1883,1  ''s  'i  contract  on  the 
part  of  the  State  that  the  stockholders  should,  by  paying  the  same,  be  dis- 
charged of  responsibility  for  the  State  stock  issued  for  the  bank,  A  law  of 
1878,  levying  $40  per  share,  was  therefore  declared  null.  In  1861  provision 
had  been  made  for  the  State  bonds  issued  for  this  bank  which  fell  due  that 
year.  There  was  still  $550,400  to  be  paid,  but  there  were  assets,  $598,so6.§ 
The  last  set  of  bonds  were  payable  in  1866.  The  stockholders  paid  all  but 
$13,000  of  the  $612,000  which  the  above  assessment  was  expected  to  pro- 


*  14  Banker's  Magazine,  6. 


t  9  ditto.  441. 


§  Board  of  Currency,  1861, 


X  Consol.  Assoc,  vs.  Lord;  35  Louisiana,  425. 


m 


THE  LOCAL  BANKS,  BY  STATES;  1845  TO  i860. 


435 


it!     I 


duce.  The  Court  said  that  the  State  had  "squandered  "  this  sum  "  in  riot- 
ous living."  The  expenses  of  the  liquidation  had  been  enormous.  The 
salaries  and  fees,  from  June,  1876,  to  January,  1882,  amounted  to  $^S,6;o. 
The  legislation  about  this  bank  was  said  to  cover  6s  pages  of  the  statute 
book. 

Early  in  the  fifties  there  began  to  be  complaint  at  New  Orleans  that  there 
was  a  deficiency  of  banking  facilities,  which  was  crippling  the  business  of 
the  place.  This  deficiency  was  attributed  to  the  undue  stringency  of  the 
existing  Constitution  and  the  banking  law.*  Apparently  in  response  to  this 
complaint,  the  Citizens'  Bank  was  revived,  by  law,  in  i8s2,  as  a  bank  of 
discount  and  deposit.  The  Governor  vetoed  the  bill  on  the  ground  that  it 
was  unconstitutional,  but  it  was  passed  over  the  veto.  Although  the  exist- 
ing Constitution  was  only  seven  years  old  a  new  one  was  made  in  this  year, 
as  it  appears,  in  a  great  measure,  in  order  to  relax  the  barriers  against 
the  banks.  The  provision  in  the  new  Constitution,  however,  was  by 
no  means  lax.  "  The  State  shall  not  subscribe  for  the  stock  of,  nor  make  a 
loan  to,  nor  pledge  its  faith  for,  the  benefit  of  any  corporation  or  joint-stock 
company  created  or  established  for  banking  purposes."  It  might  aid  com- 
panies for  carrying  out  public  works  under  certain  conditions,  but  "no  cor- 
poration or  individual  association,  receiving  the  aid  of  the  State,  as  herein 
provided,  shall  possess  banking  or  discounting  privileges."  "  Corporations 
with  banking  or  discounting  privileges  may  be  either  created  by  special 
acts,  or  formed  under  general  law;  but  the  Legislature  shall,  in  both  cases, 
provide  for  the  registry  of  all  bills  or  notes  issued  or  put  in  circulation  as 
money;  and  shall  require  ample  security  for  the  redemption  of  the  same  in 
specie.  The  Legislature  shall  have  no  power  to  pass  any  law  sanctioning  in 
any  manner,  directly  or  indirectly,  the  suspension  of  specie  payment  by  any 
person,  association,  or  corporation  issuing  bank  notes  of  any  description." 
In  case  of  the  insolvency  of  any  bank,  the  note-holders  were  to  have  prefer- 
ence over  all  other  creditors.  By  a  special  section,  laws  to  revive  the  Citi- 
zens' Bank  were  authorized  and  such  acts  already  passed  were  validated. 

The  scheme  of  1852,  however,  to  resuscitate  that  bank  proved  impracti- 
cable. By  another  law,  April  8,  18^3,  the  holders  of  the  mortgage  shares 
were  given  a  preference  in  subscribing  a  new  cash  capital  of  Si  million  for  a 
bank  of  discount  and  deposit.f  The  amount  of  State  bonds  issued  for  this 
bank  and  outstanding,  January  i,  1874,  was  $4,018,626.  Octobers,  1S80, 
the  assets  were  $1.5  millions,  consisting  of  $1  million  in  the  banking  de- 
partment and  $500,000  mortgage  stock  assets,  the  latter  worth  not  over 
$300,000.  In  1883  the  cash  stockholders  paid  in  $350,000  more.  The 
value  of  the  banking  department  assets,  in  1889,  was  $300,000.]:  In  1874 
the  charter  was  extended  for  twenty-seven  years.  In  1880  the  Legislature 
authorized  the  bank  to  compromise  and  settle  the  liability  of  its  stockholders 
on  their  mortgages.    This  act  was  construed  by  the  courts  as  in  the  interest 


I    ) 


♦  7  Banker's  Magazine,  468. 


t  13  Louisiana,  228. 


X  43  Louisiana,  742. 


m\ 


I 

^      1 

\ 

1 

j 

( 

i  ^ 

9 

436 


/}  HISTORY  OF  BANKING. 


of  the  State,  because  it  would  have  been  ruinous  to  have  enforced  the  legal 
obligation  against  property  devastated  by  the  civil  war.*  This  bank  has 
recently  undergone  a  revival  and  is  reported  prosperous. 

A  free  banking  law  was  enacted  in  iSs^,  a  distinguishing  feature  of 
which  was  that  each  bank  must  hold,  in  specie,  one-third  of  its  cash  liabili- 
ties exclusive  of  the  circulation  secured  by  the  bonds. 

The  charter  of  the  Union  Bank  expired  in  1857.  It  then  became  a  free 
bank,  and  is  now  a  national  bank.  The  statement  occurs  in  a  memorial  of 
Hope  &  Co.  to  the  Legislature  of  Louisiana  that  the  Union  Bank  paid  all  the 
bonds  issued  to  it,  and  paid  to  the  State  besides  $1.3  millions  from  its 
earnings. 

In  1S57,  the  banks  of  New  Orleans  were  required  by  law  to  record  daily 
statements  of  the  "movement"  and  to  return  to  the  Board  of  Currency 
weekly  averages  of  the  same.  Each  of  the  banks  revived  in  1842  was 
already  required  to  keep  constantly  on  hand  one-third  of  its  cash  liabilities 
in  specie.  It  was  now  enacted  that  each  president  and  director  should  be 
liable  to  a  fine  of  $100  for  every  day  that  this  requirement  was  not  complied 
with.f 

The  banks  whch  suspended  in  that  year  were  the  New  Orleans,  Union, 
Citizens',  and  Mechanics  and  Traders'.!  "The  banks  at  New  Orleans  that 
successfully  maintained  specie  payments  are  the  Bank  of  Louisiana,  the  State 
Bank  of  Louisiana,  the  Canal  Bank,  and  the  Southern  Bank;  the  latter  the 
only  one  of  the  free  banks  which  stood  the  storm,  except  the  private  bank 
of  James  Robb.  Of  the  suspended  banks  the  Citizens'  Bank,  aided  by  the 
chartered  banks,  was  first  enabled  to  resume,  "g 

The  Louisianians  exulted  in  the  results  of  their  banking  system  as  shown 
in  the  panic  of  1857.  ||  There  was  a  great  flood  of  currency  pamphlets,  etc., 
after  that  panic,  in  which  all  conceivable  views  of  the  ills  and  remedies  were 
put  forward.  In  most  of  them  it  appeared  that  the  course  of  events  at  New 
Orleans  had  powerfully  influenced  the  opinions  of  the  disputants. 

In  i860  the  Bank  of  the  State  of  Louisiana  had  the  largest  specie  reserve 
held  by  any  bank  in  the  United  States,  $4,133,000.  The  Citizens' came 
next  .with  $3, 232, 000. i^ 

The  banks  of  New  Orleans,  with  one  exception,  the  Southern  Bank,  sus- 
pended, at  the  request  of  the  Governor,  September  16,  1861,  one  year  later 
than  the  other  banks  in  the  seceding  States.  The  purpose  of  the  suspension 
was  to  sustain  the  credit  of  the  confederate  notes.  Those  banks  were  the 
financial  mainstay  of  the  Confederacy.  As  such  they  fell  under  the  blows 
of  both  sides  and  were  reduced  to  ruin.  Their  rights  and  wrongs  in  that 
period  and  the  vicissitudes  through  which  they  passed  are  too  intricate  to  be 
unraveled  here.  They  belong  to  political,  not  to  financial,  history. 
The  current  cash  or  money  of  account  at  New  Orleans,  in  1863  and  1864, 


*  Citizens'  Bank  t5.  Assessors,  U.  S.  Circ.  Ct.,  E.  D.  Louisiana.     189^.  t  ii  Ranker's  Magazine,  926. 

X  12  Banker's  Alagazine,  soS-  §  12  iiankers  Magazine,  SH4     Qtm.,  1858.) 

G  12  Banker's  Magazine,  663.  ^  15  Banker's  Magazine,  750. 


THE  LOCAL  BANKS.  BY  STATES;  1845  TO  1S60.  437 

consisted  of  city  notes.  In  some  way  the  city  obtainetl  possession  of  some 
old  notes  of  the  United  States  Branch  Bank  at  Pensacola,  in  sheets  and 
unsigned.  The  city  notes  were  printed  on  the  back  of  these  crosswise,  so 
that  when  they  were  cut  apart  each  of  the  city  notes  had  on  its  back  the 
halves  of  two  of  the  old  notes,  of  a  different  denomination.  To  supply  the 
deficiency  of  small  change,  the  city  notes  were  cut  in  two,  so  that  on  one 
side  would  be  half  of  a  $1  note,  and  on  the  other  side,  crosswise,  the  half  of 
a  $^  or  $10  note.  The  paper  was  very  good  and  the  engraved  design  of 
the  old  notes  was  good,  while  that  of  the  city  notes  was  bad.  The  notes 
were  counterfeited  by  photography.* 

Texas  came  into  the  Union  with  a  Constitution  which  provided  that 
"No  corporate  body  shall  hereafter  be  created,  renewed,  or  extended,  with 
banking  or  discounting  privileges.  No  private  corporation  shall  be  created 
unless  the  bill  creating  it  shall  be  passed  by  two-thirds  of  both  Houses  of 
the  Legislature,  and  two-thirds  of  the  Legislature  shall  have  power  to  revoke 
and  repeal  all  private  corporations  by  making  compensation  for  the  franchise, 
and  the  State  shall  not  be  part  owner  of  the  stock  or  property  belonging  to 
any  corporation.  The  Legislature  shall  prohibit  by  law  individuals  from 
issuing  bills,  checks,  promissory  notes,  or  other  paper  to  circulate  as  money." 

The  Commercial  and  Agricultural  Bank  of  Galveston  possessed  an  old 
charter,  obtained  in  183s,  from  the  State  of  Coahuila  and  Texas.  It  was 
reorganized  December  jo,  1847,  as  the  Bank  of  Agriculture  and  Commerce. 
The  Attorney-General  commenced  proceedings  against  it  to  recover  the 
penalties  for  an  unauthorized  note  issue,  but  the  suit  failed  on  a  de- 
murrer, f    It  went  into  liciuidation  in  1858. 

Tennessee. — The  Farmers  and  Merchants'  Bank  of  Memphis  suspended 
and  was  enjoined,  May  24,  1847.  It  presented  a  long  memorial  to  the 
Governor,  setting  forth  that  a  new  board  of  directors,  by  endeavoring  to 
make  much  needed  reforms,  had  provoked  hostility  and  persecution,  which 
had  forced  it  to  suspend.  It  was  required  to  resume  before  the  next  meet- 
ing of  the  Legislature.     It  went  into  liquidation. 

The  Bank  of  the  State  of  Tennessee  was  authorized,  February  2,  1846,  to 
reduce  its  capital  $200,000.  February  3,  1S4S,  it  was  allowed  to  issue  notes 
down  to  $1.  February  9,  1850,  it  was  authorized  to  sell  the  stock  owned 
by  the  State  in  the  Union  Bank  and  the  Planters'  Bank  and  held  by  it,  and  to 
buy  State  stocks  with  the  proceeds.  This  transaction,  however,  did  not 
take  place.  Year  by  year  we  find  the  existence  of  this  bank  put  in  ques- 
tion. The  public  men  of  the  State  doubted  its  usefulness,  and  even  its  offi- 
cers either  recommended  its  discontinuance,  or  gave  it  only  a  half-hearted 
defense.}:  Still  it  was  continued,  apparently  chiefly  for  the  reason  that  there 
was  a  prejudice  in  its  favor  as,  in  some  way,  the  poor  man's  friend. 

The  president  and  directors,  in  their  report  of  1856,  recommended  that 
the  bank  be  put  in  liquidation,  saying  that  it  seemed  to  have  been  injudicious 


4 


i 


*  17  Banker's  Magazine,  1004. 


t  State  rersus  Williams,  8  Texas,  255.    (1S52.) 


{  See  pages  P7,  398. 


:ri 


4}H 


A  HISTORY  OF  BANKING. 


to  chillier  it  iifter  the  State  had  taken  stock  in  the  Union  Bank  ami  the 
I^iantcrs'  Bank.  The  Legislature,  however,  preferred  the  contrary  course 
and  transferred  the  State  stock  in  the  two  latter  banks  to  the  Bank  of  the 
State,  with  authority  to  sell,  and  after  the  payment  of  the  live  per  cent, 
bonds  of  the  State,  falling  due  in  i8s8,  to  apply  the  proceeds  to  the  increase 
of  its  capital.  The  president  and  directors  adhered,  in  18S7,  to  their  former 
opinion  that  the  State  might  better  dissolve  all  connections  with  banks  or 
internal  improvement  companies  as  soon  as  possible,  although  at  present  the 
aid  of  some  banking  institution  seemed  indispensable  to  sustain  the  credit 
of  the  State.  They  think  that  the  Bank  of  the  State  is  best  adapted  to  this 
function  if  put  on  an  equality  with  the  stock  banks  of  the  State. 
They  complain  that  the  authority  of  the  mother  bank  over  the  branches 
consists  mainly  in  the  annual  election  of  their  directors  and  in  the  prepara- 
tion of  currency  for  circulation.  The  officers  have  been  frequently  changed 
on  account  of  political  changes  in  the  State.  The  suspended  debt  in  iSss 
was  $700,000.  It  was  then  placed  under  the  control  of  the  principal  bank. 
"The  examination  since  made  into  the  condition  of  the  branches  shows  that 
the  principal  losses  arose  from  that  feature  of  the  charter  requiring  loans  to 
be  made  to  the  different  counties  in  proportion  to  their  voters."  II  the  pro- 
posed changes  could  be  made  in  the  charter,  the  bank  might  do  all  the 
banking  business  of  the  State  and  win  all  the  profits  of  it  for  the  State.  It 
now  has  the  exclusive  right  to  issue  notes  under  $5,  but  they  think  this 
might  better  be  abrogated. 

The  tables  which  are  added  show  that  the  annual  profits  of  this  bank  in 
the  early  fifties  averaged  nearly  a  quarter  of  a  million.  The  annual  require- 
ments addressed  to  it  by  the  State  amounted,  by  1835,  to  $273,000,  which 
was  8.6  per  cent,  on  the  capital  it  then  had. 

There  was  great  jealousy  and  hostility  at  this  time  between  the  stock 
banks  and  the  Bank  of  the  State. 

Governor  Harris,  in  1858,  stated  in  his  message  that  he  had  made  a 
compulation  of  simple  interest  on  each  of  the  items  of  the  cash  capital  of  the 
Bank  of  the  State  since  it  was  paid  in,  and  had  compared  this  with  the  profits 
of  the  bank;  the  result  being  that  it  does  not  pay  to  borrow  at  six  per  cent., 
payable  semi-annually  at  New  York,  with  exchange  at  one  per  cent.,  in 
order  to  go  into  the  business  of  banking. 

In  the  preamble  of  certain  resolutions  adopted  November  21,  1839,  it  is 
stated  that  "the question  of  what  shall  be  done  in  relation  to  the  banks  is 
one  of  vital  importance  to  all  the  great  interests  of  the  State  ;  is  the  great 
question  of  the  present  Legislature,"  etc. 

The  Bank  of  the  State  seems  to  have  been  reconstructed  at  this  time. 
Its  annual  report  for  1839  speaks  of  it  as  having  gone  into  operation  July  i, 
1839.  The  old  suspended  debt  is  still  nearly  Sioo.cxx).  The  capital  consists 
of  $1  million  in  State  bonds,  $850,000  in  school  fund,  $932,000  of  surplus 
revenue,  $664,000  of  Union  Bank  stock,  $232,000  of  Planters'  Bank  stock. 
The  stock  of  the  two  banks  has  been  sold  for  cash  and  the  capital  has  been 


-  ■'5^cr.---3w.j 


If 


THE  LOCAL  BANKS,  BY  STATES;  1845   TO  i860. 


439 


('    I 


redistributed  between  the  branches  in  order  to  be  more  profitably  employed. 
The  Planters'  Bank  and  Union  Bank  resumed  July  1,  i8s8,  but  the  Bank 
of  the  State  would  not,  which  exposed  it  to  abuse,  and  the  other  banks 
refused  to  receive  its  notes  ;  so  that  it  was  compelled  to  follow  suit.  Never- 
theless rumors  were  afloat  injurious  to  its  credit  and  the  other  two  banks 
made  very  heavy  demands  on  it  for  redemption.  The  president  and  directors 
also  complain  that  the  bank  and  its  branches  can  only  pay  out  at  their 
counters  their  own  notes,  but  are  compelled  to  receive  in  payment  of  debts 
the  notes  of  each  other.  The  mother  bank  receives  the  notes  of  its  branches, 
but  cannot  pay  them  out  and  cannot  recover  its  own.  Its  business  has 
therefore  been  almost  suspended  for  one  month.  The  great  trouble  is  that 
the  mother  bank  has  by  law  no  control  over  its  branches  as  respects  their 
business.  Notes  under  five  dollars  are  beinj,'  withdrawn  as  fast  as  they 
come  in.  After  the  ist  of  January,  i860,  no  bank  is  to  issue  anything  under 
ten,  but  it  is  believed  that  the  small  notes  of  the  neighboring  States  will 
come  in.  The  capital  of  the  Bank  of  Tennessee,  after  twenty  years'  exist- 
ence, has  yielded  to  the  State  a  net  profit  of  $4.7  millions.  The  bank  had 
ten  branches. 

A  general  law  regulating  banks  wa>  passed  February  6,  i860.  No  notes 
were  to  be  issued  which  were  not  redeemable  where  they  were  issued  or 
paid  out,  and  none  under  five  dollars.  All  the  capital  was  to  be  paid  in  in 
coin  and  a  coin  reserve  of  one-fourth  of  the  circulation  was  to  be  main- 
tained. No  charter  was  to  last  for  more  than  fifteen  years.  This  law  was 
said  to  dismember  the  Bank  of  the  State,  on  account  of  the  provision  that 
no  notes  might  be  issued  which  were  not  redeemable  where  issued.  The 
Planters'  Bank  and  the  Union  Bank  refused  to  obey  the  law  and  it  proved 
ineffective. 

The  Bank  of  the  State  removed  all  its  assets  to  the  South  early  in  the 
civil  war.  They  never  could  be  recovered.  It  was  wound  up  by  order  of 
the  Legislature  in  1866.  The  notes  were  redeemed  but  no  other  debts  were 
paid. 

In  Kentucky,  at  the  session  of  1860-1,  a  plan  was  proposed  for  a  "Sink- 
ing Fund  Bank,"  very  nearly  on  the  plan  of  the  old  Bank  of  the  Common- 
wealth. Among  other  peculiar  provisions  was  one  that  it  should  keep  an 
amount  of  specie  equal  to  one-third  of  its  circulation;  but  that,  if  it  failed  to 
do  so,  it  might  suspend.* 

Ohio. — A  bank  of  the  State  of  Ohio  was  founded  on  a  new  plan, 
February  24,  184=;.  Any  number  of  persons,  not  less  than  five,  might 
engage  in  banking.  A  number  of  companies  are  mentioned  as  already 
existing,  with  an  aggregate  capital  of  .$6.  i  ^0,000,  which  are  to  be  combined 
in  it.  The  State  is  divided  into  twelve  districts,  with  a  specified  number  of 
banks  and  amount  of  capital  in  each.  Five  Bank  Commissioners  are  named 
for  one  year,  after  which  the  Auditor,  Treasurer  and  Secretary  of  State  are 


;  I 


'    I, 


;  . :        I 


i 


v 


b\ 


^1  t! 


!  i 


IS  Banker's  Magazine,  750. 


I  <i     '«'  I 


l! 


440 


//  HISTORY  or  RANKING. 


to  constitute  the  board  of  Bank  Commissioners.  Each  company  is  to  file  a 
certificate  with  a  statement  ol  its  name,  capital,  etc.,  and  whether  it  proposes 
to  be  independent  or  a  branch  of"  the  State  Bank.  The  capital  of  the 
independent  banks  is  to  ranfi;e  between  $so,ooo  and  $sc)0,o(X),  and  of 
branches  between  $i(X),()f3<)  and  $S(X).cxk).  The  certilicates  of  the  funded 
debt  of  the  United  States  or  of  Ohio  are  not  to  be  counted  in  the  capital, 
which  must  be  paid  up  in  specie,  all  the  details  of  organization  and  pay- 
ment of  the  capital  being  inspected  by  the  Commissioners.  When  seven 
companies  shall  have  proposed  to  become  branches  of  the  Bank  of  the  State 
they  shall  each  elect  a  member  of  the  Board  of  Control  of  said  bank.  That 
Board  shall  elect  the  president.  The  scat  of  the  Board  of  Control  is  to  be  at 
Columbus.  They  are  to  decide  on  the  amount  of  circulation  of  each  branch; 
to  procure  and  furnish  it;  and  to  establish  rules  for  settling  the  balances 
between  the  branches.  They  have  visitorial  power  and  their  salaries  and 
expenses  are  to  be  paid  by  the  branches  in  the  ratio  of  their  capital,  as  also 
the  expenses  of  preparing  the  notes.  The  Board  of  Control  is  made  a  body 
corporate  until  1866.  Each  member  of  that  Board  is  to  have  one  vote,  and 
one  more  for  every  $so,ooo  in  circulation  which  his  branch  has.  The  notes 
issued  by  any  branch  must  be  paid  by  it  in  specie.  Those  branches  which 
have  not  over  §100,000  capital  are  not  to  issue  in  excess  of  twice  the  capital, 
and  larger  banks  a  smaller  proportion.  The  Board  of  Control  is  to  replace 
worn  and  defaced  notes.  Each  branch  is  to  give  to  the  Board  of  Control,  as 
a  safety  fund,  ten  per  cent,  of  its  circulation  in  money,  or  stocks  of  Ohio,  or 
of  the  United  States.  This  fund  is  to  be  invested  in  mortgages,  and  the 
interest  on  it  is  to  go  to  the  depositing  branches.  All  the  stockholders  in 
any  branch  are  to  owe  to  it,  in  the  aggregate,  not  more  than  one-third  of  its 
capital.  Any  branch  which  does  not  redeem  its  notes  is  to  be  considered 
insolvent,  and  the  Board  of  Control  shall,  upon  examination,  appoint  a 
receiver  and  put  the  money  in  some  solvent  branch,  with  which  to  pay  the 
notes,  all  the  solvent  branches  contributing  to  this  expense.  Any  note- 
holder may,  through  the  courts,  compel  the  Board  of  Control  to  take  this 
action  against  a  delinquent  branch.  Each  independent  bank  is  to  deposit 
with  the  State  Treasurer  bonds  of  the  State,  or  of  the  United  States,  to  the 
amount  of  its  capital,  and  he  is  to  give  to  it  its  circulating  notes  to  an 
amount  not  exceeding  the  value  of  the  bonds,  nor  three  times  the  paid-up 
capital.  He  is  to  have  the  custody  of  the  plates  and  paper,  and  to  replace 
worn  out  notes,  the  cost  being  assessed  on  the  banks,  and  each  bank  is  to 
have  the  interest  on  its  bonds  as  long  as  it  pays  specie;  but  if,  in  New  York 
for  four  weeks,  the  bonds  fall  below  the  value  at  which  they  were  deposited, 
the  interest  is  to  be  retained  to  make  good  the  deficiency.  Any  insolvent 
bank  is  to  be  wound  up  by  a  receiver  and  the  securities  sold  to  pay  the 
notes.  All  the  stockholders  of  a  bank  may  not  be  liable  to  it,  in  the 
aggregate,  for  more  than  three-fifths  of  its  capital.  The  Bank  Commissioners 
are  to  appoint  an  agent  annually  to  examine  the  banks.  No  bank  may  lend 
on  its  own  stock.     The  independent  banks  are  to  last  until  1866.     They  are 


THE  LOCAL  BANKS.  BY  STATES;  184^  TO  i860. 


441 


to  issue  oni's,  twos,  threes,  fives,  iind  the  decim;il  JiMioiiiin;itions  onlv,  thi- 
percentaj^'e  of  each  ilcnoinination  bciii^  prescriheil;  andthi'v  are  to  issue  110 
other  kinil  ol  note.  Hach  of"  them  and  the  branches  otthe  Mank  ol  the  State 
are  to  take  each  others'  notes  at  par;  each  is  to  keep  at  least  thirty  per  cent, 
of  its  circulation  in  specie;  no  bank  is  to  hypothecate  its  circulation  to  ^c\ 
bonds  to  deposit  for  circulation.  Six  per  cent,  of  the  profits  are  to  be  paid 
semi-annually  to  the  State  as  a  tax,  the  interest  on  the  bonds  deposited  not 
to  count  in  the  profits;  no  bank  to  circulate  any  notes  which  are  not  at  par, 
nor  any  notes  of  any  bank  outsidf  of  the  State  for  less  than  $s.  Specified 
banks  may  come  under  this  law  and  retire  their  old  circulation. 

The  Ohio  Life  and  Trust  Company  was  allowed,  by  an  act  of  February 
II,  1846,  to  become  either  an  independent  bank  or  a  branch  of  the  Mank  of 
the  State,  if  it  so  desired,  by  settin;^  off  a  banking;  capital  in  specie  of  not 
less  than  .$100,000  nor  more  than  $sck),ooo. 

In  order  to  enforce  the  authority  of  the  Board  of  Control  of  the  Hank  of 
the  State,  it  was  enacted,  February  24,  1848,  that  any  Judge  of  the  Supreme 
Court  should  enjoin  any  branch  which  neglected  or  refused  to  obey  the 
Board  of  Control,  and  that  the  Board  should  appoint  a  receiver  for  it. 

In  1848,  there  were  thirty-seven  branches  of  the  Bank  of  the  State  of 
Ohio  and  seven  old  banks.  The  Ohio  Life  and  Trust  Company  had  a  total 
capital  of  $2  millions,  but  its  banking  capital  was  only  $61 1,626,  being  the 
amount  of  permanent  deposits  or  loans  which  it  held.  There  were  eleven 
independent  banks.  The  Bank  oftheSt.ite,  in  the  aggregate,  had  capital. 
$3.3  millions;  circulation,  $s.4  millions;  deposits,  $2.2  millions;  specie. 
$1.9  millions;  the  safety  fund  was  §621,339,  besides  S77.4S7  for  the  same  to 
the  c.  dit  of  the  Board  of  Control.  The  assets  exceeded  the  liabilities  to  the 
public  $1.4  millions. 

The  Constitution  of  18s  i  provided  that  "No  act  of  the  General  Assembly, 
authorizing  associations  with  banking  powers,  shall  take  effect,  until  it  shall 
be  submitted  to  the  people,  at  the  general  election  next  succeeding  the 
passage  thereof,  and  be  approved  by  a  majority  of  all  the  electors  voting  at 
such  election." 

The  Legislature  once  more  took  in  hand  the  whole  system  of  banking, 
and  enacted  a  comprehensive  free  banking  law,  March  21,  i8si.  The 
Auditor  was  to  prepare  the  notes  and  deliver  them,  on  deposit  of  Ohio  or 
United  States  bonds  for  an  equal  amount,  not  above  the  market  value  or  par 
value,  and  not  in  excess  of  three  times  the  paid-up  capital  ;  lowest  notes, 
$1 ;  all  banks  under  this  law  to  receive  each  others'  notes  and  to  keep  thirty 
per  cent,  of  the  circulation  in  coin;  the  Auditor  to  sell  the  bonds  whenever 
the  bank  fails  to  redeem  and  he,  with  the  Secretary  of  State,  to  appoint  a 
special  agent  for  examination,  on  whose  report  they  might  appoint  a 
receiver;  all  the  stockholders  of  a  bank  never  to  owe  it  in  the  aggregate 
over  two-fifths  of  its  capital;  fifteen  per  cent,  for  non-redemption.  This 
made  four  systems  of  banks  in  Ohio:  those  chartered  before  184s,  which 
in  1854  had  $1.55  millions  capital;  the  State  Bank  and  branches,  with  $4.1 


<       I 


K; 


H 


M 


>^. 


';'i  '■ 


•^'^ 


Li  ' '     ' 


m 


Mi 


.if 


443 


/^  HISTORY  OF  BANKING. 


millions  capital  at  that  time;  the  independent  banks,  with  $7^0,000  capital, 
and  the  free  banks,  v,ith  $693,000  capital.  During  these  years  repeated 
laws  were  passed  to  try  to  stop  the  circulation  of  out-of-State  notes. 

Taxes  on  banks  were  increased  by  laws  of  March  21,  1851,  and  April  » 3, 
1852,  by  way  of  a  war  on  banks.  The  banks  succeeded  in  breaking  down 
the  law  in  the  courts.* 

The  banks  of  this  State  received  their  first  shock  in  1834,  when  it  appears 
that,  as  a  result  of  piling  one  system  upon  another,  they  had  produced  an 
excessive  inflaiion  .  nd  a  commercial  crisis.f 

A  new  act  for  the  incorporation  of  a  Bank  of  Ohio,  with  branches,  was 
passed  April  14,  1857.  After  five  branches  should  be  organized,  each  of 
them  was  to  appoint  one  delegate,  to  constitute  a  Directoiy  of  the  bank, 
which  should  procure  and  furnish  to  the  branches  their  circulating  notes. 
Ten  per  cent;  on  the  circulation  was  to  be  paid  over  to  the  Directory  in 
money  or  in  bonds  of  the  United  States  or  of  Ohio,  to  constitute  a  safety 
tund;  the  money  part  to  be  invented  in  bonds  or  mortgages.  On  the  first 
$100,000  of  capital  notes  might  be  issued  only  for  double  the  amount;  on 
ihe  second  $100,000,  for  175  per  cent,  of  the  amount;  and  so  on;  lowest 
note,  $1 ;  non-redemption  on  the  part  of  any  branch  constitutes  insolvency, 
and  thereupon  its  assets  vest  in  the  Bank  of  Ohio,  and  a  receiver  is  to  be 
appointed ;  all  the  branches  are  to  contribute  to  pay  the  notes  of  an  insol- 
vent branch.  The  chief  Directory  is  to  get  an  injunction  against  any  dis- 
obedient branch ;  tlie  bank  is  to  have  offices  at  Cleveland,  Cincinnati,  and 
New  York,  and  is  to  act  at  New  York  as  the  transfer  agent  of  the  State.  At 
least  half  of  the  capital  of  each  branch  is  to  be  in  specie  or  its  equivalent. 
Any  existing  bank  or  branch  of  the  Bank  of  the  State  may  come  into  this 
one,  and  the  old  corporation  is  dissolved  Thirty  per  cent,  of  the  circula- 
tion is  to  be  kept  in  specie  funds,  of  which  at  least  half  must  be  real  specie; 
the  balance  in  New  York  or  other  eastern  cities  may  be  counted  ~s  cash. 
Bank  Commissioners  are  appointed  to  set  this  bank  in  operation. 

September  30,  18^7,  the  Board  of  Control  of  the  Bank  of  the  State  of 
Ohio  resolved  that  \U  branches  could  and  would  maintain  specie  payments, 
and  they  did  so.|  There  was  great  complaint  all  through  this  period  of  the 
anti-bank  legislation  in  this  State.  It  appears  to  be,  thanks  to  that  legisla- 
tion, that  Ohio  was  saved  from  the  banking  distress  of  the  States  further 
west. 

Ohio  adopted  an  independent  treasury  system  in  1858.  Taxes  we;  e  to 
be  collected  in  coin  or  notes  of  those  specie  paying  banks  of  Ohio  which 
issued  no  notes  under  lives — "a  virtual  exclusion  of  Ohio  bank  p;iper  as 
well  ,-s  all  other."  Alter  July  4,  1860,  no  notes  under  ten  dollars  were  to 
be  re.eived  ;  after  July  4,  i86s,  none  under  twenty  dollars.  The  State  Bank 
woi.id  cease  in  1806.  The  free  banks  would  cease  in  1872.  After  th;.t 
r^ithing  but  coin  was  to  be  used  by  the  State. § 


*  rO  Howard,  lug. 


t  See  pagf  444, 


*  12  R jnker's  Magazine,  42; . 


§  12  Bank'.r's  Magazine,  901. 


THE  LOCAL  BANKS,  BY  STATES;  184'j  TO  i860. 


443 


In  185S,  the  Bank  of  the  Ohio  Valley  w.is  planned,  to  establish  a  modified 
Suffolk  system  of  exchange  at  Cincinnati  for  the  banks  of  that  entire  region. 
The  following  description  of  its  purpose  is  taken  from  a  letter  of  the  presi- 
dent: "in exchange  between  the  seaboard  cities  and  the  West,  speculation 
had  so  controlled  the  rate  of  premium  as  to  become  a  serious  evil  to  the 
banks  of  Ohio,  in  common  with  those  of  Indiana  and  Kentucky,  in  order 
to  exercise  some  control  over  those  exchanges,  a  few  gentlemen  connected 
with  the  banks  of  Ohio,  under  the  free  banking  law  of  i8si.  organized  this 
bank  and  made  for  it,  so  acquiring  corporate  form,  a  contract  with  the  State 
Bank  of  Ohio,  by  which  (in  brief)  the  branches  of  said  bank  were  to  de- 
posit with  this  bank  an  amount  :;qual  to  four  per  cent,  upon  their  authorized 
circulation,  free  of  exchange  interest ;  conditioned  that  this  bank  should  sell 
the  exchange  upon  eastern  cities  it  could  create,  at,  or  a  less  rate  than,  one- 
half  percent,  premium." 

An  example  of  a  bogus  bank  is  mentioned  in  Ohio,  in  iSsg.  It  had  paid 
$i6t  for  a  plate,  and  a  quarter  of  a  cent  on  the  dollar  for  printing,  but  had 
given  $1,900  to  the  publisher  of  a  bank  note  detector  to  '■  quote  the  money 
right.  "*  They  had  not  wasted  any  of  their  ''capital."  They  had  expended 
it  where  the  return  on  it  would  be  greatest.  This  is  not  the  only  evidence 
we  meet  with  that  the  high  function  of  the  "  Detector"  under  this  system 
was  used  for  revenue. 

Michigan. — In  1848,  the  only  bank  reported  was  the  Michigan  State  Bank, 
with  a  circulation  of  $216,^26  ;  coin,  861,965  ;  total  cash  items.  $111,362. 

In  the  Constitution  of  i8so,  it  was  provided  that  no  banking  lav/  should 
have  effect  until  it  had  been  submitted  to  a  popular  vote  and  approved  by  a 
majority.  Stockholders  of  every  b.mking  corporation  issuing  circulating 
notes  were  made  individually  liable  for  debts  contracted  while  they  were 
such.  All  bank  notes  were  to  be  registered  and  stock  security  deposited  for 
them.  Note  holders  were  to  be  first  preferred  creditors.  No  law  might 
ever  be  passed  authorizing  or  sanctioning  the  suspension  of  specie  payments. 
A  tv/o-thirls  vote  of  both  Hou>es  "vas  required  for  altering  or  amending  any 
act  of  incorporation  previously  granted,  and  no  such  act  might  be  renewed 
or  ex+ended.  In  i860,  the  individual  liability  of  stockholders  was  made  pro- 
portionate to  their  shares  in  the  capital.  By  an  amendmei't  adopt-d  in 
1862,  no  corporations  might  be  created  by  special  act.  Gener.1l  laws  for 
creating  them  might  be  amended,  altered,  or  repealed,  "but  the  i.egislature 
may,  by  a  vote  of  two-thirds  ot  the  members  ek-cted  to  each  House,  create 
a  single  bank  with  branches."  No  general  banking  law  was  to  have  effect 
until  it  had  been  approved  by  a  popular  vote. 

Indiana. — Four  new  branches  of  the  Bank  of  the  State  were  establishv^d, 
January  10,  1849,  with  a  capital  of  $160,000  each,  of  which  the  State  was  to 
sibscribe,  in  each  case,  not  less  than  $6o.ckx\ 

By  the  Constitution  of  iS-i!,  the  Legislature  w:.s  forbidden  to   establish 


y 


4  '■'','! 


i  m 


*  14  Banker's  Magai-r.c,  15?. 


1  .    M 


7T 


444 


A  HISTORY  OF  BANKING. 


m^\ 


any  bank,  s"ve  under  a  general  law,  which,  if  passed,  must  provide  for 
registry  of  notes  by  a  State  officer,  with  ample  security,  in  the  custody  of  a 
State  officer;  but  a  bank  with  branches  and  without  this  security  might  be 
established,  provided  that  the  branches  should  all  be  mutually  responsible, 
the  stockholders  individually  liable  to  the  extent  of  double  their  shares,  the 
notes  redeemable  in  gold  and  silver,  the  note-holders  tv  be  the  first  preferred 
creditors,  and  such  bank  to  last  only  twenty  years.  No  law  might  ever 
sanction  the  suspension  of  specie  payments.  The  State  should  never  be  a 
stockholder  in  any  bank  after  the  expiration  of  the  present  State  Bank,  nor 
in  any  other  corporation,  nor  lend  its  credit  to  anybody. 

A  general  banking  law  on  the  New  York  model  was  passed  May  28,  1852. 
Under  it  wild-cat  banking  was  developed  to  an  extent  then  unknown,  It 
was  contemporaneous  with  the  inflation  in  Ohio.*  "The  speculato-  '.omes 
to  Indianapolis,"  said  the  Governor,  18^2,  "with  a  bundle  of  l\ink  luiles  in 
one  hand  and  his  stock  in  the  other.  In  twenty-four  hours  he  n  on  his  way 
to  some  distant  part  of  the  Union  to  circulate  what  he  calls  a  legal  currency, 
authorized  by  the  Legislature  of  the  State  of  Indiana.  He  has  nominally 
located  his  bank  in  some  distant  part  of  the  State,  difficult  of  access,  where 
he  knows  that  no  banking  facilities  are  required,  and  intends  that  his  notes 
shall  go  into  the  hands  of  persons  who  will  have  no  means  of  demanding 
their  redemption." 

In  18^4  the  Ohio  valley  was  the  scene  of  a  bank  crisis  at  the  time  of  the 
crisis  in  the  stock  market  at  New  York.f  The  Auditor  stated,  in  his  repo;t, 
that  a  heavy  run  commenced  in  May  upon  the  State  stock  banks  for  coin. 
Nothing  but  coin  would  be  taken.  This  continued  for  sixty  days  before  any 
of  the  banks  suspended.  "  A  crisis  then  showed  itself  in  the  whole  mone- 
tary operations  of  the  western  country."  The  notes  of  many  banks  in  Ohio 
fell  ^0  a  discount  and  the  banks  suspended.  "Chicago  and  Illinois  generally 
were  next  the  theater  of  the  effects  of  this  combined  demand  for  coin  ;  also 
resulting  in  the  failure  of  several  banking  houses,  and  a  depreciation  of  their 
notes.  The  fact  that  the  notes  of  the  Indiana  banks,  under  the  general 
law,  were  secured  by  interest-paying  bonds  of  the  several  States  of  the 
Union,  and  in  many  instances  by  the  very  best  securities  that  any  State 
issues,  seemed  to  be  of  no  value  in  the  estimate  put  upon  their  notes  by  the 
public.  A  general  depreciation  ensued."  At  the  same  time,  the  deposited 
stocks  declined  in  value  on  the  New  York  market,  so  that  if  they  had  been 
forced  to  sale  by  the  Bank  Department,  to  redeem  the  notes  of  banks  which 
had  failed,  there  would  have  been  a  deficiency.  It  seemed  to  him  that  if 
notes  secured  by  the  best  stocks  could  not  command  confidence,  it  was 
doubtful  whether  any  system  of  paper  currency  would  be  regarded  with 
public  favor.  On  this  occasion,  the  old-fashioned  banks,  with  no  securities 
in  deposit,  were  so  little  upheld  by  public  opinion,  in  Ohio  and  elsewhere, 
that  their  notes  became  almost  valueless.     He  proposed  a  number  of  new 


*  See  page  442. 


+  See  page  4.^. 


THE  LOCAL  BANKS,  BY  STATES;  184^  TO  i860. 


445 


rules  for  banking,  t/.e  purport  of  which  was  generally  that  the  banks  should 
have  a  well-known  and  accessible  domicile,  and  be  open  in  banking  hours 
of  every  business  day.* 

Before  1857,  94  banks  had  been  organized  under  the  general  law,  with 
a  nominal  capital  of  more  than  $35  millions;  and  circulating  notes  had  been 
issued  to  them  for  more  than  $9  millions.  Fifty-one  of  them  had  failed,  and 
their  notes  were  selling  in  Cincinnati  at  from  Cw^  to  eighty-live  discount. 
These  banks  had  been  built  one  upon  another,  the  notes  of  one  being  used 
to  buy  the  stocks  with  which  to  organize  another.  The  operation  was  called 
"  shingling,  "t  McCulloch|  tells  of  a  case  of  a  man  who  bought  bonds  with 
notes,  deposited  the  bonds  for  circulation;  with  the  notes  bought  more 
bonds,  and  repeated  the  process.  With  $10,000  capital,  he  got  out,  before 
1857,  $600,000  of  circulation;  he  did  no  banking,  but  lived  on  the  interest  of 
his  bonds. 

The  experience  of  1834  was  considered  to  call  for  a  revision  of  the  gen- 
eral banking  law.  The  whole  of  the  act  of  1S32  was  quoted  in  a  new  act, 
of  March  3,  i8s5,  with  certain  new  provisions,  in  effect  remodeling  Ihe 
system.  One  hundred  dollars  in  notes  were  tc  be  issued  only  against  Si  10 
in  stocks  depi  ited.  Every  bank  was  to  have  a  banking  house,  sign,  etc., 
and  do  business  from  ten  until  three  daily  on  all  business  days,  'ihe  banks 
which  have  organized  under  the  law  of  18^2  are  to  have  until  March  i,  18S7. 
to  wind  up  or  comply  with  this  act.  Every  bank  under  this  law  must  have 
an  agent  at  Indian., polls  to  redeem  it5  notes  in  specie,  or  in  exchange  on 
New  York;  the  former  at  one  per  cent,  discount  and  the  latter  at  the  ruling 
rate. 

The  charter  of  the  State  Bank  of  Indiana  was  to  expire  in  1857.  Its  report 
of  October  31,  1854,  showed  a  suspended  debt  of  $1.8  millions,  a  surplus 
fund  of  $1.1  millions,  a  circulation  of  $2.8  millions,  specie  $1.3  millions. 
During  the  previous  year  it  had  redeemed  ove.'  $2.5  millions  of  circulation. 
The  Auditor  thought  that  the  State  should  come  to  a  settlement  with  the 
bank  at  once,  whereby  it  would  release  itself  from  liability  for  the  bonds 
issued  and  possibily  realize  a  profit. 

Indiana  issued  bonds  on  account  ofthetirst  Bank  of  the  State  for  $1,390- 
000,  for  which  she  >  Itained  the  net  sum  of  $1,416,750.  Of  this, 
$880,000  were  paid  for  ock  in  the  bank,  and  $255,009  for  loans  to  stock- 
holders who  could  ni'!  pay  their  own  subscriptions.  The  remainder, 
$281,741,  constituted  a  linking  fund.  Up  to  the  ti.'st  of  November,  1858, 
the  net  gains  of  the  bank  and  sinking  fund  were  $;!,356,6<;9;  to  which  the 
addition  might  be  made  of  interest  on  a  part  of  the  f-    J  .-hich  had  been 

♦Some  forces  which  were  brought  lu  bear  on  "banking"  ought  not  to  be  ovirlookeu.  A  Lfxi.igton  (Ky.,)  banker 
was  hung  in  effigy  at  Versailles,  in  iSss.  '  'r  sending  home  bank  notes  issued  by  the  oank  in  that  place  lur  redemption.  (lo 
Banker's  Magazine,  41.)  At  SpringlleUl.  Ohio,  in  l8=;7.  the  citizens  put  a  brush  and  tar  buckf^  at  the  door  of  the  local  bank 
in  order  to  frighten  off  any  brokers  coming  to  demand  specie.  (12  Banker's  Magazine,  ^^~.)  A  man  who  presented  notes 
for  redemption  to  a  country  branch  of  the  Bank  of  Missouri,  in  1859,  was  threatened  with  lynching  by  a  mob  who  collected, 
(14  Banker's  Magazine,  p}.) 

+  12  Banker's  Magazine.  165. 

X  Men  and  Measures,  126. 


'i  i 


I 


H 


446 


A  HISTORY  OF  BANKING. 


loaned  to  the  State.*  In  comparison  with  the  failure  and  waste  attendant 
upon  the  financial  enterprises  of  this  character  which  had  been  attempted  in 
other  States,  this  case  stands  out  as  a  subject  of  especial  interest. 

McCulloch,  in  defending  the  second  Bank  of  the  State,  had  occasion  to 
state,  in  1857,  what  bethought  had  beenthecauses  ofthesuccess  of  this  bank. 
He  attributed  it  to  "  the  peculiar  features  of  its  charter  and  the  prudence  of  its 
managers."  "  The  State  was  powerless  in  the  Board  of  Control  and  in  the 
branch  Boards.  *  *  *  The  success  of  the  State  Bank  is  unquestionably 
owing  to  the  facts  that  the  State  Board  had  full  control  of  the  business  of  the 
branches  ;  that  the  branches,  although  independent  in  their  profits,  were 
mutually  responsible  for  the  circulation  and  deposits  of  each  other,  and  that 
the  men  who  managed  them  had  both  character  and  money  to  lose  by  mal- 
adminis^Mtion  of  their  affairs,  "f  In  the  case  of  a  bank,  at  least,  it  is  emphat- 
ically true  that  "what  is  best  administered  is  best." 

On  the  same  day  on  which  the  above-mentioned  revision  of  the  general 
banking  law  was  passed,  a  new  Bank  of  the  State  was  chartered  for  twenty 
years,  with  very  nearly  the  same  features  as  the  old  one,]:  over  a  veto.  There 
was  great  difficulty  in  raising  the  capital  of  the  new  bank,  and  it  seems  very 
doubtful  if  it  could  have  been  put  in  operation ;  but  the  plan  was  aaopted 
of  selling  the  new  charter  to  the  old  bank,  which  thus  went  on  as  before. 
Hugh  McCuliOch  was  made  president.  He  had  been  cashier  of  the  ^ jti 
Wayne  branr.h.  There  was  a  great  deal  of  complaint  by  the  anti-bank  men 
that  the  Legislature  had  been  outwitted,  and  the  Constitution  violated,  by 
a  trick,  and  there  were  even  charges  of  corruption.  McCulloch  answered 
that  the  purchasers  of  the  charter  were  innocent  of  any  such  proceedings. 
He  predicted  the  panic  of  i8s7,  ii;  April  of  that  year.§  Reviewing  his  ad- 
ministration of  the  bank,  in  his  book,  he  says  that  he  was  obliged  to  coerce 
the  d.;-ectors  of  the  branches,  and  to  prevent  them  from  borrowing  of  the 
bank  ;  and  he  adds,  in  regard  10  the  numei'ous  bank  failures  in  the  United 
States,  that  no  bank  ever  failed  there,  "the  capital  of  which  was  a  cash 
reality  and  whose  managers  were  not  thieves,  or  the  borrowers  of  its 
money."  This  statement  uues  not  say  as  much  as  it  might  at  first  leiMii  to 
say,  for  we  have  seen  that  the  almost  universal  diseases  of  the  banki  had 
been  that  they  had  not  a  cash  capital,  and  that  the  directors  did  borrow  ot 
them  or  plunder  them.  The  wonder  is  that  a  great  many  more  such  did  pot 
go  into  bankruptcy.  McCulloch's  administration  of  this  bank  has  become 
justly  famous.  In  view  of  what  we  have  seen  about  the  Banks  of  the 
States,  any  man  deserved  high  honor  who  could  pilot  such  an  institution 
successfully  through.  The  plan  of  this  bank  and  that  of  the  Bank  of  the 
State  of  Ohio  were  evidently  attempts  to  co-ordinate  and  organize  the  petty 
banks  into  a  unity  where  they  could  be  regulated  and  restrained.  It  is  plain 
that  no  such  system  could  work  unless  there  was  firm  discipline,  unflinching 
integrity,  and  fearlessness  at  the  head. 


*  Commissioner!  of  the  Sinlting  Fund, 


'      ^ 


I8^q.  t  II  Biinker's  Magazine,  918. 

§  J 1  Banlfer's  Mjgazine,  931^. 


♦SeepiKjeiSS. 


W         ii 


'■■•-■'■-^'■'"^^''-•''ii.M. 


■-^J|»J!4i.V''- 


447 


THE  LOCAL  BANKS,  BY  STATES;  184^  TO  i860. 

This  bank  did  not  suspend  in  1857.  'ts  notes  bore  a  premium  over  all 
tlie  western  notes,  and  were  at  five  per  cent,  above  tiiose  of  liie  State  Bank 
of  Ohio  in  Cincinnati.*  IVlcCulloch  tells  us  that  at  that  time  "there  was  a 
tacit  understanding  between  the  branches  and  their  customers,  that  deposits 
of  bank  notes  were  payable  in  bank  notes."  There  was  a  run  for  gold  on 
the  Bank  of  the  State  as  long  as  there  was  a  premium  on  sending  gold  from 
Cincinnati  to  New  York.  After  three  months  the  bank  felt  no  further  strain 
of  the  crisis,  and  was  strengthened  by  going  through  it.f  It  should  be 
noticed  that  the  revulsion  of  18^4  was  the  real  crisis  in  the  Ohio  valley,  and 
not  that  of  18,7.  In  the  latter  year  that  region  was  rather  in  the  subdued 
and  chastened  condition  which  follows  a  crisis. 

A  convention  of  representatives  of  the  free  banks  was  held  in  April,  i860, 
to  concert  measures  for  redemption  at  Cincinnati.  It  was  found  that  the 
interests  of  banks  in  different  parts  of  the  State  were  so  different,  that  no 
agreement  could  be  made.  Their  only  common  interest  was  antagonism  to 
the  Bank  of  the  State,  and  the  only  common  measures  on  which  they  could 
agree  were  those  of  war  on  that  bank  for  returning  their  notes  persistently. f 

The  Bank  of  the  State  published  a  statement  December^!,  1861 :  "Under 
no  conceivable  circumstances  will  the  Bank  of  the  State  of  Indiana  suspend 
specie  payments.  We  have  frequently  given  to  the  people  of  the  State  the 
pledge  that  our  notes  should  always  be  convertible  into  coin.  This  pledge 
we  shall  in  good  faith  fulfill.  "§ 

In  January,  1862,  the  branches  of  the  State  Bank  were  warned  by  the 
Board  of  Control  not  to  let  hope  of  profit  lead  them  to  expand  their  discounts 
on  an  irredeemable  currency.  Coin  was  not  to  be  allowed  to  fall  for  more 
than  two  days  below  fifty  per  cent,  of  circulation,  and  all  productive 
investments  were  not  to  be  increased  beyond  175  per  cent,  of  capital. 
The  stock  of  coin  was  then  $4.3  millions  and  the  circulation  $5.8  millions. 
The  bank  did  not  suspend  until  after  the  legal  tender  act  was  passed. 

McCulloch  obtained  a  decision  from  the  Supreme  Court  of  Indiana  that  it 
would  be  lawful  for  that  bank  to  use  legal  tender  notes  in  the  redemption  of 
its  notes,  even  under  the  stringent  provisions  of  its  charter.  Thereupon  he 
put  out  the  circulation  again,  but  proceeded  to  hoard  gold  until,  in  1863, 
the  gold  slock  equaled  the  capital. 

The  branches  of  the  Bank  of  the  State  were  authorized,  by  act  of  January 
19,  1865,  to  break  up  their  relations  with  that  bank  and  close  up  the  busi- 
ness, so  that  they  might  go  over  into  the  national  system  if  they  chose. 
The  president  of  the  bank,  in  his  report  of  January,  1867,  said:  "There  is  no 
disposition  on  the  part  of  those  who  control  it  to  abandon  the  charter  to 
embark  in  a  new  and  as  yet  unproved  system. "||  The  branches  made  the 
change  one  by  one  during  i86> 

The  Illinois  Constitution  of  1848  provided  that  the  Legislature  should 


I  i 


•  McCulloch,  13V  :  McCulloch,  135. 

§  lO  U.inker's  Mag.izine,  oso. 


1 14  Banker's  Magazine  913. 

It)  Banker's  Magazine,  824;  883. 


44« 


A  HISTOR  Y  OF  BANKING. 


J: 


t 


h;ive  "  no  power  to  authorize  lotteries  tor  any  purpose,  nor  to  revive  or  ex- 
tend the  charter  of  the  State  Bank  or  the  charter  of  any  other  bank  hereto- 
fore existing  in  this  State."  The  credit  of  the  State  might  not  be  loaned  to 
anybody;  furthermore  "  no  State  bank  shall  hereafter  be  created,  nor  shall 
the  State  own  or  be  liable  for  any  stock  in  any  corporation  or  joint  stock 
association  for  banking  purposes,  to  be  hereafter  created.  The  stockholders 
in  every  corporation  or  joint  stock  association  for  banking  purposes  issuing 
bank  notes,  or  any  kind  of  paper  credit  to  circulate  as  money,  shall  be  individ- 
ually responsible  to  the  amount  of  their  respective  share  or  shares  of  stock 
in  any  such  corporation  or  association  for  all  its  debts  and  liabilities  of  every 
kind."  No  act  to  grant  banking  powers  should  go  into  effect  until  after  it 
had  been  approved  by  a  majority  of  the  votes  at  a  general  election. 

Illinois  adopted  a  general  banking  law  on  the  New  York  model,  over  a 
veto,  February  is,  iSsi.  It  was  put  to  a  popular  vote  and  approved.  It 
was  amended,  perfected,  and  extended  February  14,  1857.  A  case  arose  in 
1859,  in  which  the  Reapers'  Bank,  being  called  on  to  redeem  two  packages 
of  notes  of  $^00  each,  refused  to  do  it  for  the  total  sum,  but  spent  more  than 
a  banking  day  on  each  package,  redeeming  only  a  part  of  it,  one  note  at  a 
time,  in  dimes  and  half  dimes.  The  unredeemed  notes  were  protested  and 
sent  to  the  Auditor  for  redemption  out  of  the  deposited  bonds.  The  bank 
sought  an  injunction,  but  the  Court  refused  it  in  terms  which  characterized 
the  proceedings  of  the  bank  as  improper,  and  unwarranted,  and  not  a 
compliance  with  its  lawful  duty.* 

From  1859  to  1861  the  bank  note  currency  of  this  State  fell  into  the  utmost 
confusion  and  discredit,  in  common  with  the  rest  of  the  currency  of  the 
northern  Mississippi  valley.  Apparently  from  a  belief  that  the  Bank  of  the 
State  of  Indiana  had  rescued  that  State  from  the  similar  condition  into  which 
it  had  fallen  in  the  early  fifties,  a  charter  for  the  Union  Bank  of  Illinois  was 
passed  February  20,  1861.  It  was  a  disguised  Bank  of  the  State  which  the 
Constitution  forbade,  and  departed  from  the  Indiana  model  in  several  very 
important  respects,  and  in  a  questionable  way.  The  law  was  rejected  at 
the  referendum  in  November,  by  a  large  majority. 

In  June,  1861,  the  Bank  Commissioners  made  a  call  on  twenty-three 
banks  for  additional  securitic,  '^aving  only  seventeen  which  were  not  under 
call.  The  "stump  tail"  currency,  as  it  was  called,  was  then  disappearing; 
specie  was  coming  into  use,  and  bank  notes  were  treated  as  merchandise. 
The  Wisconsin  paper  was  treated  in  the  same  way. 

In  August  all  new  banks  were  required  to  redeem  their  circulation  in 
Chicago  or  Springfield  at  not  more  than  three-fourths  of  one  per  cent, 
discount,  .md  after  January  ist  at  not  more  than  one-half  of  one  percent. 
The  old  banks  were  allowed  to  adopt  the  plan  of  central  redemption  and  to 
increase  their  circulation  by  the  deposit  of  Illinois  bonds  at  par  without 
regard  t^  their  market  value. 


24  Illinois,  433.     (i860). 


M  ; 


THE  LOCAL  BANKS,  BY  STATES;  1S45  TO  i860. 


449 


!n  September  the  Illinois  banks  were  not  able  to  maintain  their  circulation. 
The  Chicago  "Times"  said:  "We  believe  the  fiat  has  gone  forth,  and  that 
all  banks  organized  under  the  present  banking  law  are  worse  than  useless, 
either  to  the  public  or  the  owners." 

In  September  and  October,  under  the  influence  of  the  political  disturb- 
ances, a  very  thorough  reform  of  the  currency  of  the  Northwest  was  accom- 
plished.* 

The  Illinois  Constitutional  Convention  of  1862  adopted  an  article  which 
forbade  the  creation  of  any  banking  corporation  for  any  of  the  functions  of 
banking.  Notes  under  $10  were  forbidden  at  once;  those  under  $20  after 
1864;  and  all  bank-notes  after  1866.  Upon  the  submission  of  this  Consti- 
tution to  a  popular  vote,  the  banking  article  was  rejected  by  about  four 
thousand  majority;  and  the  whole  Constitution  by  about  six  thousand. 

In  July,  1862,  the  Auditor  of  Illinois  advertised  the  rates  at  which  he 
would  redeem  the  notes  of  ninety-three  free  banks.  Five  were  at  par,  the 
others  at  from  49  to  95  cents — most  of  them  at  from  50  to  60  cents  on  the 
dollar.f 

Missouri. — A  general  banking  law  was  passed  at  the  session  of  1856-7; 
probably  over  a  veto,  since  it  is  not  dated.  There  might  be  no  bank  with 
less  than  $1  million  capital,  and  no  notes  under  Ss;  if  any  bank  suspended 
for  ten  days,  its  charter  was  to  expire;  one-tenth  of  the  capital  must  be  paid 
in  in  specie  before  beginning;  every  bank,  within  one  year  of  its  beginning, 
must  invest  ten  per  cent,  of  its  capital  in  bonds  of  the  State,  and  also  ten 
per  cent,  of  any  capital  subsequently  paid  in;  it  must  also  save  two  percent, 
of  its  net  gains  every  year  and  invest  them  in  State  bonds,  as  a  contingent 
fund.  It  might  not  loan  on  its  own  stock,  nor  employ  more  than  five-eighths 
of  its  capital  in  exchange  dealings;  it  must  pay  a  bonus  or  tax  of  one  per 
cent,  of  its  capital  and  issue  not  more  than  three  times  the  specie  on  hand. 
Every  bank  of  $1  million  capital  must  have  two  branches.  A  Bank 
Commissioner  was  to  inspect  the  capital  of  every  new  bank,  and  to  cause 
the  notes  to  be  printed  and  delivered  to  each  bank  to  the  lawful  amount. 
There  was  no  provision  for  the  deposit  of  bond  security.  Nine  banks  were 
organized  under  the  act,  and  it  was  piovided  that  the  Bank  of  the  State 
might  come  in  as  the  tenth.  This  law  was  suspended  November  s,  1857, 
until  November  i,  1858,  on  behalf  of  the  Bank  of  Missouri  and  the  others 
which  had  suspended  specie  payments.  Debtors  to  the  banks  were  to  have 
an  extension,  on  the  payment  of  twenty  per  cent.,  giving  security.  The 
suspended  bank  paper  might  circulate,  but  the  notes  issued  after  the  passage 
of  this  act  must  have  a  distinguishing  mark. 

Missouri  currency,  which  had,  through  all  the  first  half  of  the  century, 
been  amongst  the  very  best  in  the  Union,  became,  in  1859,  one  of  the  worst. 
It  became  uncurrent  in  Indiana,  Kentucky,  and  Ohio,  except  Cincinnati.]; 
The  State  was  busy  during  this   decade    with    "public    improvements," 


♦  16  Banker's  Magazine,  489. 
29 


1 17  Banker's  Magazine,  596. 


X  14  Banker's  Magazine,  152. 


I      ■ 


\Jl] 


1  ,'i 


!  !l  i'li 


I 


m 
m 


r  i 

h     « 


ii    l\     i 


.V 


450 


A  HISTORY  OF  BANKING. 


P, 


issuing  bonds  in  aid  of  railroads.  As  the  latter  did  not  pay  the  interest  on 
the  bonds  the  State  finances  became  disordered.  The  presence  of  these  bonds 
in  the  banii  guarantee  funds  of  several  States  also  became  a  cause  of  trouble 
to  them. 

In  Missouri  the  term  "currency"  was  used  for  all  kinds  of  uncurrent 
bank  paper.  The  Bank  Commissioner  said,  in  i860,  "The  truth  of  the 
whole  matter  is  that,  in  a  practical  sense,  our  banks  cannot  justly  lay  claim 
to  the  name  of  specie-paying  banks."  He  found  it  very  mortifying  that 
Missouri  currency  was  one  per  cent,  below  that  of  Indiana,  Ohio,  Kentucky, 
Tennessee  and  Louisiana.  We  are  warranted  .  the  conclusion  that  there 
was  no  "convertible"  currency  in  the  whole  Mississippi  valley,  north  of 
Arkansas  and  the  Gulf  States,  even  when  "convertible"  currency  is  under- 
stood with  all  the  latitude  customary  in  those  days  in  the  United  States.* 

The  Supreme  Court  of  this  State  rendered  a  decision,  in  1863,  in  support 
of  the  action  of  a  bank  which,  when  called  on  to  redeem  several  thousand 
dollars  of  its  notes,  took  them  one  at  a  time,  the  lowest  being  for  ten  dollars, 
and  redeemed  each  one  by  giving  five  dollars  in  fractional  coin  of  the  coinage 
of  1853,  and  gold  for  the  rest.f 

Wisconsin. — Some  citizens  of  Milwaukee  presented  to  Congress,  January 
31,  1837,  a  remonstrance  against  the  charters  passed  by  the  Territorial 
Legislature  for  the  Bank  of  Milwaukee,  the  Miners'  Bank  of  Dubuque,  and 
the  Bank  of  Mineral  Point.  The  congressional  committee  reported  favorably 
on  the  three,  expressing  the  hope  that  the  Territorial  Legislature  would  not 
find  it  necessary  to  make  any  more  for  a  long  time.  An  act  was  accordingly 
passed  ratifying  these  three  charters,  but  with  important  modifications, 
which  Congress  thus  imposed.  An  act  of  the  Legislature  of  the  same 
Territory  creating  a  State  Bank  of  Wisconsin  at  Prairie  du  Chien  was  dis- 
allowed, June  12,  1838. 

In  the  summer  of  1838,  it  was  reported  from  a  Wisconsin  newspaper 
that  wild-cat  money  had  overrun  the  Territory,  driving  out  all  other.  In 
1840,  the  only  bank  in  the  Territory  of  Wisconsin  was  that  of  Mineral  Point, 
with  $100,000  capital;  $90,000  circulation;  specie  and  specie  funds,  $48,492. 
At  a  later  date,  however,  it  was  reported  that  there  had  been,  until  1841,  a 
Bank  of  Wisconsin  at  Green  Bay.  J:  In  1839,  the  Wisconsin  Marine  and  Fire 
Insurance  Company  of  Milwaukee  was  chartered  by  the  Territorial  Leg- 
islature. It  had  authority  also  to  receive  money  on  deposit  and  to  loan  the 
same;  but  banking  privileges  were  expressly  excluded.  If  it  received  bank 
notes  on  deposit  and  loaned  them,  it  was  to  endorse  them  by  its  president, 
and  redeem  them  in  specie,  in  case  the  issuing  bank  should  fail.  This  char- 
ter was  obtained  by  George  Smith,  who  issued  certificates  of  deposit  in  set 
denominations,  for  small  amounts.  The  authorized  capital  of  the  company 
was  $500,000,  but  it  started  with  $8, 104  paid  up.  The  issue  was  continued 
until  1852.     It  became  famous  all  over  the  Northwest  as  "  George  Smith's 

•  14  Banker's  Magazine,  810.  t  i  Whittlesey,  497.  %  Treasury  Report,  August  u,  1848. 


BE 


THE  LOCAL  BANKS,  BY  STATES;  iS^5  TO  iSf>o.  4^' 

money,"  and  reached  a  maximum  amount  or$i.s  millions.  The  certificates 
were  redeemed  in  specie  at  Milwaukee,  and  there  were  agencies  at  Chicago, 
Detroit,  Buffalo,  and  St.  Louis,  at  which  the  notes  were  redeemed  with 
drafts  on  New  York.  The  notes  were  unflinchingly  redeemed.  In  1846  the 
Legislature  repealed  the  charter  of  the  Insurance  Company,  but  did  not 
instruct  the  Attorney-General  to  institute  proceedings  for  forfeiture.  The 
company  was  re-organized  under  the  free  banking  law  of  Wisconsin.  Its 
original  founders  having  either  died  or  left  it,  it  failed  a  few  years  ago.* 

The  Secretary  of  the  Territory  reported  to  the  Secretary  of  the  Treasury 
in  1848,  in  regard  to  Smith's  money:  "It  constitutes,  in  a  great  measure, 
the  paper  circulation  of  the  eastern  portion  of  the  Territory,  and  indeed  of 
northern  Illinois,  "f  This  currency  was  often  denounced,  and  the  bankers 
of  Chicago  appear  to  have  made  constant  war  on  it,  but  we  get  the 
impression  that  it  was  the  best  currency  there  was  in  the  Northwest  before 
the  civil  war. 

In  the  Constitution  of  1848,  the  Legislature  was  forbidden  to  create  any 
bank  in  any  way,  unless  the  question  of  bank  or  no  bank  should  have  been 
decided  at  a  general  election  in  favor  of  banks.  Then  it  might  create  banks 
by  general  or  special  law,  but  every  such  law  must  be  ratified  by  a  majority 
at  a  general  election,  before  it  should  be  valid. 

A  free  banking  law  was  passed  in  18^3.  Under  it  the  deposit  of  first 
mortgage  bonds,  on  a  first-class  railroad,  at  not  over  80,  and  not  more  than 
$8,000  per  mile,  as  a  security  for  circulation,  was  allowed.  In  this  State 
also  the  possibilities  of  mischief  in  this  free  banking  system  were  amply 
manifested.  It  would  be  a  very  great  mistake  to  suppose  that  that  system, 
where  it  had  been  tried  before  the  war,  had  inspired  confidence.  In  the 
majority  of  cases  the  contrary  was  the  case. 

Out  of  $5.3  millions  on  deposit  in  the  Banking  Department,  in  i8s8, 
$2.3  millions  were  Missouri  bonds,  which  were  losing  credit  on  account  of 
the  large  issues. 

In  August,  1858,  a  number  of  the  private  bankers  of  Chicago  threw  out 
the  notes  of  twenty-seven  Wisconsin  banks  because  the  currency  had  been 
greatly  increased  by  banks,  "located  at  inaccessible  points,  having  no  capital, 
doing  no  banking  business,  providing  no  means  whatever  for  the  redemp- 
tion of  their  issues,  and  in  many  instances  having  not  even  an  office  or  known 
place  of  redemption."!:  This  led  to  the  formation  of  an  Association  of 
forty-five  Wisconsin  banks  to  enforce  redemption  on  a  number  of  their 
comrades,  specified  by  name,  which  were  considered  "wild." 

On  account  of  the  depreciation  of  stocks  the  Banking  Department  found 
it  necessary  to  call  on  the  banks  for  more  stocks  or  a  reduction  of  circula- 
tion, October  15,  i860.  The  Legislature,  however,  in  February  recom- 
mended the  Comptroller  to  refrain  from  such  demand,  in  accordance  with 
existing  law,  until  it  could  act.     The  Department  held  more  than  $3  millions 


■  I' 


)!'! 


I 


•  if 


i\W} 


♦  White ;  An  Elastic  Currency. 


t  Treas.  Rep.  Au^Uit  10,  1S4S. 


X  13  Banker's  Magazine,  : 


t  ■  V 


^ 


4> 


A  HISTORY  OF  BANKING. 


I.    I 


!       \i 


n» 


>  i 


'hi 


in  Southern  bonds,  and  it  was  feared  that  if  they  were  thrown  on  the  market 
a  panic  would  lie  produced,  in  April,  the  Legislature  recommended  the 
Comptroller  to  proceed  with  the  calls.  Two  per  cent,  additional  security 
was  called  for.  Thirteen  banks  failed  or  refused  to  respond.  When  the 
Comptroller  proceeded  with  the  steps  prescribed  by  law  for  winding  them 
up  and  selling  tlieir  securities,  he  was  arrested  by  an  injunction.  The  inter- 
position of  the  Legislature,  "instead  of  eliciting  the  gratitude  of  these  par- 
ties, served  them  as  a  handle  to  obtain  an  injunction,  and  as  a  means  to 
embarrass  the  lawful  action  of  the  Department."  They  wanted  to  gain  time 
to  buy  in  their  depreciated  currency,  and  with  it  to  release  their  bonds. 
June  3d,  an  additional  call  of  eight  per  cent,  was  made,  on  account  of  the 
continued  decline  of  Southern  bonds.  Fifty-eight  banks  did  not  obey  the 
call;  forty  did  not  even  acknowledge  the  receipt  of  the  notice.  An  agent 
sent  out  to  serve  notices  could  find,  in  many  cases,  no  banking-house,  or 
no  competent  officer  to  receive  service.  In  September  the  stocks  of  nine- 
teen banks  were  advertised  for  sale.  In  October,  another  call  of  three  per 
cent,  was  issued  on  Illinois,  Michigan,  Ohio,  California,  and  Missouri  bonds. 

In  1863,  twenty-two  Wisconsin  banks  were  closing  business,  whose 
notes  were  being  redeemed  at  from  5s  to  80  cents  on  $1.  The  notes  of  fifteen 
others,  which  had  been  wound  up,  were  being  redeemed  in  treasury  notes 
at  a  somewhat  higher  rate.* 

Iowa. — The  Miners'  Bank,  of  Dubuque,  mentioned  above  as  having  been 
chartered  by  the  Territory  of  Wisconsin,  was  the  only  bank  in  lov/a  in  1840. 
It  suspended  in  March,  1841;  resumed  July  1,  1842;  and  its  charter  was 
repealed  in  1S44,  by  virtue  of  a  power  reserved  in  it  to  the  Legislature  so  to  do. 

The  free  banking  law  of  iS,8  forbade  the  payment  of  interest  on  deposits, 
required  a  specie  reserve  of  twenty-five  per  cent,  of  deposits,  prescribed 
that  the  stocks  deposited  for  circulation  must  pay  six  per  cent,  or  more,  and 
that  the  circulation  issued  should  not  exceed  ninety  per  cent,  of  the  value  of 
the  bonds. 

A  Bank  of  the  State  of  Iowa,  on  the  plan  of  the  Bank  of  the  State  of 
Indiana,  was  chartered  March  20,  i8s8. 

MiNNF.soTA. — The  Constitution  of  i8s7  provided  that  banks  should  always 
be  taxed  at  the  same  rate  as  other  property;  that  the  credit  of  the  State 
should  never  be  loaned  to  anybody;  that  a  general  banking  law  might  be 
passed  bv  a  two-thirds  vote  of  both  Houses,  but  it  must  contain  certain  pro- 
visions; that  suspension  of  specie  payments  should  never  be  sanctioned; 
that  all  circulating  notes  should  be  registered  and  secured  by  stocks;  that 
stockholders  in  any  bank  should  be  individually  liable  for  double  their 
shares;  that  note-holders  should  be  first  paid  out  of  the  assets;  and  that  the 
names  of  all  stockholders  in  banks  should  be  recorded,  with  the  amount  of 
stock,  time  of  transfer,  and  to  whom  transferred. 

The  general  banking  law  was  passed  March   19,    1858,  and  amended 


17  Banker's  Magazine,  1,002. 


THE  LOCAL  BANKS.  BY  STATFS;  iS^^  TO  i8bo.  4S3 


March  8,  1861.  On  account  of  the  depreciation  of  the  stocks  in  the  Bank 
Fund,  the  rate  of  redemption  of  the  notes  of  failed  banks,  in  i860,  was  from 
16  to  3^  cents  on  the  dollar. 

Kansas. — The  Constitution  of  1S59  provided  that  no  bank  should  be  estab- 
lished except  by  a  general  law  providing  for  a  deposit  of  stocks  as  security. 
The  State  might  not  be  a  stockholder  in  any  bank.  All  banks  must  have 
offices  of  issue  and  redemption  at  convenient  places  in  the  State,  to  be  named 
on  the  notes.  No  note  might  be  allowed  for  less  than  $>  Every  banking 
law  must  be  submitted  to  the  people,  and  might  be  amended  or  repealed. 

The  report  from  NnaRA.;KA,  in  i860,  was  that  the  Territory  had  had  six 
banks,  all  of  which  were  broken.  A  Judge  of  the  Third  District  of  Iowa 
declared  all  the  banks  of  Nebraska  illegal  in  1859.*  The  Secretary  of  the 
Territory  calls  it  a  "disastrous"  system.  He  construes  the  act  of  Congress 
of  July  1,  i8j6.  as  forbidding  any  Territory  to  incorporate  a  bank,  but  says 
that  some  hold  that  the  Kansas-Nebraska  act  has  repealed  that  prohibition. 
He  appears  to  think  that  the  prohibition  would  be  very  salutary. 

Arkansas  went  through  1857  without  sharing  in  the  troubles.  The  people 
of  that  State  were  "enabled  to  laugh  at  the  storm  which  makes  the  rest  of 
the  country  tremble."  They  thought  that  it  was  because  their  Constitution 
would  allow  them  to  have  no  banks,  f 

A  law  of  that  State,  February  8,  1859,  forbade  thn  use  or  circulation  in 
any  manner  whatever  of  notes  under  ten  dollars  after  the  following  July  4th. 
After  the  same  date  \n  i860  no  note  under  $20  might  be  circulated. 

California. — During  the  first  years  after  the  gold  discovery  some  private 
firms  coined  gold.  Only  one  of  them  kept  up  to  the  standard  of  the;  United 
States.  Proof  was  offered  th.it  gold  coins,  under  such  circumstances,  could 
become  merchandise,  requiring  negotiation,  and  not  money,  and  that  their 
presence  could  deprive  a  community  of  any  money  of  account,  just  as  we 
have  seen  that  bank  notes  could  operate,  under  similar  circumstances,  of 
depreciation.  We  are  told  that  some  silver  coins  having  been  imported,  they 
were  at  one  hundred  per  cent,  premium;  an  interesting  statement  which  is 
unfortunately  not  further  explained.! 

Technical  definitions  are  largely  a  matter  of  expediency  and  convenience, 
but  this  case  brings  out  into  strong  light  the  inexpediency  and  unfitness  of 
a  definition  of  money,  which  makes  it  a  generic  term  for  all  media  of 
exchange.  That  definition  bridges  over  the  gulf  between  money,  properly 
speaking,  on  the  one  side,  and  any  securities  or  commodities,  on  the  other 
side,  in  the  use  of  which  some  preliminary  transaction  is  required,  or  some 
incidental  transaction  is  involved,  before  they  can  be  employed  as  make- 
shifts for  the  functions  of  money.  The  function  to  be  defined  is  specific, 
positive,  and  sharply  distinguished  from  any  other;  therefore  the  first  step 
towards  scientific  accuracy  and  productive  treatment  is  to  give  that  function 
a  precise  definition  and  an  unambiguous  name.     For  popular  use,  in  connec- 


i'  I 


***  14  Banker's  Maganne.  410. 


t  1 3  Banker's  Magazine,  586. 


X  7  Banker's  Magazine,  77. 


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23  WEST  MAIN  STREET 

WEBSTER,  N.Y.  14SB0 

(716)  872-4503 


454 


A  HISTORY  OF  BANKING. 


tion  with  a  matter  where  the  chief  errors  and  difficult"  s  arise  from  confusion 
of  thought,  the  same  precision  of  definition,  upon  lines  which  will  throw 
out  all  the  distinctions  into  the  sharpest  possilsle  relief,  is  also  of  the  first 
importance.  In  the  last  analysis,  all  the  fallacies  of  bimetallism  rest  upon  a 
lack  of  a  due  conception  of  the  money  function  in  its  full  distinctness  and 
isolation  from  everything  else. 

The  Constitution  of  1849  allowed  no  banking  institutions  for  anything 
but  safe  deposit,  and  explicitly  forbade  all  issue  of  paper  currency  to  serve 
as  money,  A  law  of  April  19,  1855,  prescribed  as  a  penalty  for  issuing  any 
circulating  paper  a  punishment,  for  the  first  offense,  of  imprisonment  in  the 
county  jail  for  not  more  than  three  months,  or  fine  not  to  exceed  $2,000,  or 
both ;  for  the  second,  and  every  subsequent  offense,  not  less  than  one  year's 
imprisonment  in  the  State  prison;  or  the  term  might  extend  to  five  years,  at 
the  discretion  of  the  Court. 

The  Oregon  Constitution  of  1857  forbade  the  existence  in  the  State  of 
any  institution  whatever  issuing  notes  to  serve  as  currency. 


The  average  bank  note  circulation  per  capita  was  as  follows ; 


1834  to  1840 
1841  to  1845 


J13.66 
8.25 


1846  to  1850 
1851  to  1855 


$9.89 
>3-55 


i8s6  to 
1861  to 


i860 
i86j 


$14.26 
15.66 


For  the  whole  thirty  years  $12.41. 


The  States  in  which,  in  i  ^59,  the  circulation  of  notes  under  five  dollars 
was  illegal  were  Pennsylvania,  Maryland,  Virginia,  Alabama,  Louisiana  and 
Missouri. 

The  ratio  of  specie  to  circulation  and  deposits  in  the  different  States,  in 
1859,  varied  from  $4.25  on  $100  in  Illinois  to  $52.46  in  Louisiana.  Massa- 
chusetts had  $21.63;  New  York,  $20.39.* 

In  tlie  Spring  of  1861  four  banks  failed  at  Albany.  Apropos  of  these 
failures  the  Banker's  Magazine  said:  "A  radical  change  in  the  banking 
system  is  required  in  this  and  particularly  in  Western  States,"  and  it  spoke  of 
the  New  York  country  banks  as  mushroom  concerns.  "The  recent  course 
of  events  in  Illinois,  Wisconsin  and  Missouri  has  demonstrated  more  strongly 
than  ever  the  insecurity  of  the  bank  note  currency  of  those  States,  and  of 
other  States  where  bank  notes  are  issued  on  the  security  of  State  bonds,  "f 
This  is  the  last  general  verdict  on  the  old  local  bank  system  which  we  can 
quote  from  a  friendly  source  before  the  upheaval  of  the  whole  currency  and 
banking  system  by  the  civil  war.  If  there  had  been  no  war,  the  banking  and 
currency  system  of  the  country  would  have  been  a  pressing,  distressing,  and 
unsolved  problem.  If  the  then-existing  system  was  satisfactory,  we  find  no 
proofs  of  it  in  the  literature  where  that  fact  should  have  found  expression. 


'  14  Binker's  Magazine,  30. 


t  16  Banker's  Magazine,  j. 


THE  LOCAL  BANKS,  BY  STATES;  1845  TO  i860. 


4'iS 


In  1862  there  were  fifteen  hundred  banks,  the  notes  of  253  of  which  had 
not  been  counterfeited.  The  variety  of  imitations  was  1,861 ;  of  alterations, 
^,039;  of  spurious  notes,  1,685.*  From  1853  to  1862  the  Association  for 
the  Prevention  of  Counterfeiting  at  Boston  caused  434  persons  to  be  sent  to 
Stnte  prison  for  an  aggregate  time  of  1.425  years,  4  months. f 

The  Bank  Note  Detector  did  not  become  divested  of  its  useful  but 
contemptible  function  until  the  national  bank  system  was  founded.  It  is 
difficult  for  the  modern  student  to  realize  that  there  were  hundreds  of  banks 
whose  notes  circulated  in  any  given  community.  The  "bank  notes"  were 
bits  of  paper  recognizable  as  a  species  by  shape,  color,  size  and  engraved 
work.  Any  piece  of  paper  which  had  these  appearances  came  with  the 
p;  estige  of  money ;  the  only  thing  in  the  shape  of  money  to  which  the  people 
were  accustomed.  The  person  to  whom  one  of  them  was  offered,  if 
unskilled  in  trade  and  banking,  had  little  choice  but  to  take  it.  A  merchant 
turned  to  his  "Detector."  He  scrutinized  the  worn  and  dirty  scrap  for  two 
or  three  minutes,  regarding  it  as  more  probably  "good"  if  it  was  worn  and 
dirty  than  if  it  was  clean,  because  those  features  were  proof  of  long  and 
si^ccessful  circulation.  He  turned  it  up  to  the  light  and  looked  through  it, 
because  it  was  the  custom  of  the  banks  to  file  the  notes  on  slender  pins 
which  made  holes  through  them.  If  there  were  many  such  holes  the  note 
had  been  often  in  bank  and  its  genuineness  was  ratified.  All  the  delay  and 
trouble  of  these  operations  were  so  much  deduction  from  the  character  of  the 
notes  as  current  cash.  A  community  forced  to  do  its  business  in  that  way 
had  no  money.  It  was  deprived  of  the  advantages  of  money.  We  would 
expect  that  a  free,  self-governing,  and,  at  times,  obstreperous,  people  would 
have  refused  and  rejected  these  notes  with  scorn,  and  would  have  made 
their  circulation  impossible,  but  the  American  people  did  not.  They  treated 
the  system  with  toleration  and  respect.  A  parallel  to  the  state  of  things 
which  existed,  even  in  New  England,  will  be  sought  in  vain  in  the  history  of 
currency. 


*  Congressional  Globe,  1861,  p.  844. 


t  17  Bjnker's  Magazine,  f^j. 


.5" 

i 


456 


A  HISTORY  OF  BANKING. 


BANKING  STATISTICS  OF  THE  UNITED  STATES;  1830  TO  1862. 

For  1830-18}),  front  14  Banker's  Magazlna,  765  ;  i8)4-i!!o>,  from  )7  Cong.,  3  Sess.,  5  Ex.  >io. 


January. 

Number  of 
Banks. 

Capital. 

Circulation. 

Deposits. 

Circul,  &  Uep'U 
per  capita. 

Specie. 

Loans. 

1830  .   . 

$394  m. 

$182  m. 

$S!  in. 

$s8m. 

$24  m. 

$272  111. 

1831   . 

426 

186 

■'7 

62 

2b 

285 

1832  .   . 

448 

191 

62 

67 

25 

301 

1833   . 

472 

198 

68 

7' 

26 

316 

1834  .   . 

S06 

200 

94 

7S 

26 

324 

1835   . 

704 

231 

103 

83 

$12.61 

43 

365 

1836  .   . 

7'3 

2SI 

140 

115 

16.77 

40 

457 

1837   . 

7^8 

290 

149 

127 

17.66 

37 

525 

1838.   . 

829 

3'7 

116 

84 

12.46 

35 

485 

1839   . 

840 

327 

135 

90 

13- S9 

45 

492 

1840  .   . 

907 

3S8 

107 

!'■> 

10.70 

33 

462 

1841   . 

784 

3'3 

107 

64 

9-79 

34 

386 

1842  .   . 

692 

260 

83 

62 

8.07 

28 

323 

1843   . 

691 

228 

58 

56 

6.15 

33 

254 

1844  .   . 

696 

210 

75 

84 

8.31 

49 

264 

184^   . 

707 

206 

89 

88 

8.96 

44 

288 

1846  .   . 

707 

196 

105 

96 

9.90 

42 

312 

1847   . 

7>5 

203 

I  OS 

9' 

9-35 

35 

310 

1848  .   . 

7S1 

204 

128 

103 

10.65 

46 

344 

1849   . 

782 

207 

114 

91 

9.17 

43 

332 

1850  .   . 

824 

217 

131 

109 

10.39 

45 

364 

1851   . 

879 

227 

ISS 

128 

11.87 

48 

4'3 

1852  .   . 

992* 

237* 

156* 

189* 

13.31 

53* 

S27* 

1853   . 

1,098* 

22'-, 

146 

145 

13.66 

47 

408 

1854.   . 

1,208 

301 

204 

188 

14.97 

59 

5^7 

1855   . 

■.307 

}}2 

187 

190 

•3-9'> 

53 

576 

1856  .   . 

1,398 

347 

195 

212 

14.66 

59 

634 

1857   . 

1,416 

370 

214 

230 

IS.  52 

58 

684 

1858  .   . 

1,422 

394 

IS5 

185 

I  i.s6 

74 

583 

1859   . 

i,S70 

401 

193 

2S9 

14.91 

104 

6S7 

i860  .   . 

I,S62 

421 

207 

2^3 

14.66 

83 

691 

I861   . 

1,601 

429 

202 

2S7 

14.13 

87 

696 

1862  .   , 

1,496 

419 

183 

297 

14.36 

102 

647 

*  Supplied  from  the  Banker's  Magasine,  as  above. 


Hf 


Tnifffiiiii'il'iliMiliUihh<iiiiilililililiUi1i(ilililililililiT^t|nTBXt|T|^ 


lumnmmnmmnnnnnnnnn/UTAnmuuuuinnnnnnnnn/uuuuifuinnnnnnnAnn/ir 


i 


CHAPTER  XVI.— CoNTiNiiF.D. 


§  2. — The  Banks  at  tlw  Otiibrcak  of  the  Civil  H^'ar;  i860  to  i8hj, 

"The  year  i860  will  long  be  remembered  as  one  of  ihe  most  extra- 
ordinary of  the  century  in  its  commercial  and  financial  features.  No  previous 
year  has  exhibited  stronger  indications  of  prosperity  amongst  merchants, 
manufacturers',  capitalists  and  the  great  agricultural  interests  of  the  country 
at  large.  We  speak  of  these  in  their  aggregates."  The  crops  of  hay,  corn, 
wheat,  cotton  and  tobacco  were  all  large.  "The  only  speck  in  the  horizon 
is  the  threat  of  secession  in  the  South."* 

At  the  beginning  of  October  there  was  a  very  active  bull  market  for 
stocks.  Railroad  earnings  were  large  and  stocks  showed  a  great  advance 
from  the  prices  at  the  beginning  of  the  year.  There  was  some  reaction 
against  this,  and  disappointment  at  results  on  the  western  railroads,  before 
the  political  influences  began  to  have  effect.  The  Pennsylvania  election 
early  in  October  indicated  the  probability  of  Lincoln's  election.  At  the  end 
of  the  month  the  bears  prevailed,  in  November  a  contraction  of  credit  took 
place.  In  Virginia,  Georgia,  and  South  Carolina  the  restrictive  laws  on 
banks  were  repealed  or  relaxed,  in  preparation  for  revolution.  On  the  20th 
and  following  days  the  banks  of  Virginia,  North  Carolina,  Georgia,  Charles- 
ton and  St.  Louis  suspended.  They  were  followed  by  those  of  Baltimore 
and  Philadelphia.  At  the  last  city  there  was  an  important  run  on  the  banks. 
The  suspension  of  the  Philadelphia  banks  caused  that  of  the  banks  of  West 
Jersey.  On  the  12th  there  was  a  panic  on  the  New  York  stock  market,  with 
a  decline  of  8  to  12  points  on  the  price  of  stocks. 

The  New  York  banks  determined  on  a  policy  of  freer  loans  in  order  to 
quell  the  panic.  At  a  meeting,  November  21,  it  was  agreed  that  the  clear- 
ing house  should  appoint  a  committee  who  should  receive  and  hold  New 
York  or  United  States  securities,  and  issue  thereon  certificates  for  seventy- 


{ 


*  IS  Mankcr's  Magazine,  417. 


4?« 


A  HISTORY  OF  BANKING. 


M 


II 


five  per  cent,  of  the  value,  good  at  the  clearing  house.  The  certificates 
were  to  bear  seven  per  cent,  interest,  which  was  to  be  divided  amongst  the 
banks  which  should  take  them.  The  amount  was  set  at  $5  millions;  after- 
wards increased  by  $5  millions  more.  The  specie  of  all  the  banks  was  to  be 
united  as  a  common  fund.  Each  bank  was  to  hold  specie,  after  February  1, 
for  one-fourth  of  its  net  liabilities.  One  which  failed  so  to  do  for  two  weeks 
was  to  be  excluded  from  the  Association.  The  Chemical  Bank  refused  to 
participate  in  the  plan.     It  was  boycotted  until  April.* 

In  December  specie  was  received  from  Europe,  the  news  of  the  financial 
difliciilties  here  not  having  created  any  alarm.  The  exchange  was  very  low; 
commercial  bills  were  not  salable  unless  of  the  best,  and  the  exporta- 
tion of  the  crops  was  arrested  until  these  sums  were  received.  Specie  was 
also  received  regularly  from  Calilbrnia.  The  policy  of  expansion  in  the  face  of 
the  panic  proved  entirely  successful.  The  crisis  passed  and  the  winter  went 
by  without  any  further  difficulty,  although  there  was  anxiety,  and  all  enter- 
prise was  checked.  The  community  with  one  accord  adopted  the  policy  of 
liquidation,  quiescence  and  cash,  while  waiting  to  see  what  would  happen. 

In  January,  1861,  sterling  exchange  was  down  to  103  1-2.  During  the 
summer  it  remained  between  104  and  108,  and  did  not  reach  par  until 
December. 

During  the  year  the  banks  of  the  three  leading  commercial  cities  showed 
the  same  movement.  In  New  York  the  loans  diminished  from  $129.6 
millions,  on  January  s,  to  $108.7  millions  August  17th.  Then  they  increased 
to  a  maximum  of  $162.7  millions  on  November  30th,  and  were  at  $i')4.7 
millions  December  28th,  when  the  suspension  took  place.  Circulation  like- 
wise diminished  from  $8.6  millions  at  the  beginning  of  the  year  to  $8.3 
millions,  July  27th,  and  rose  again  to  $8.4  millions  December  28th.  The 
minimum  point  was  $7.9  millions,  January  26th,  and  the  maximum,  $9.3 
millions  May  nth.  The  deposits  rose  until  April  20th,  fell  to  their  lowest 
point  June  22d,  but  rose  again  very  rapidly  in  the  last  three  months  of  the 
year.  The  specie  stock  increased  from  January  until  the  middle  of  August, 
doubling  in  that  period;  but  then  gradually  fell  off  again  and  ended  the 
year  less  than  $1^  millions  greater  than  at  the  beginning.! 

The  banks  of  Boston  offered  to  the  Governor,  April  18,  1861,  such  mone- 
t.iry  aid  as  he  might  need,  to  the  extent  of  ten  per  cent,  on  their  capital. 
The  restriction  of  business  had  set  their  resources  free. 

August  IS,  1861,  the  Associated  Banks  of  New  York,  with  the  banks  of 
Boston  and  Philadelphia,  entered  into  a  contract  with  the  Secretary  of  the 
Treasury  to  buy  government  securities  to  the  amount  of  $150  millions,  in 
three  instalments  of  $50  millions  each.  The  Associated  Banks  of  New  York 
adopted  a  system  for  executing  this  contract,  and  at  the  same  time 
protecting  their  own  position.  Amongst  the  rest  it  was  provided  that 
the  specie  stock  should  not  be  allowed  to  fall  below  one-fourth  of  the 


*  1 5  Banker's  Magazine,  )im. 


t  16  Banker's  Magazine,  38!^ ;  558. 


THE  BANKS  AT  THE  OUTBREAK  OF  THE  CI^L  WAR.    4S9 

net  liability,  exclusive  of  the  circulation  and  of  the  credit  given  to  the 
Treasury.  In  case  of  a  deficiency  of  this  amount  of  specie  in  any 
bank,  it  was  to  pay  interest  thereon,  which  was  to  bo  distributed,  by  the 
Loan  Committee  elected  to  supervise  this  operatior.  amongst  tliC  banks 
which  had  the  greatest  excess  over  twenty-five  per  cent.  The  share  of  the 
New  York  banks  in  each  division  of  this  I  :in  of  $150  millions  was  $3S  mil- 
lions. The  Loan  Committee  was  also  to  issue  loan  certificates  to  the  partici- 
pating banks  available  for  settling  balances  between  themselves  in  case  at  any 
time  it  should  be  necessary,  on  account  of  any  embarrassment  produced  by 
the  advances  to  the  government.  The  first  of  these  loan  certificates  were 
issued  September  19th,  when  the  banks  had  paid  in  $23.1  millions  in  coin 
on  account  of  their  subscription  to  the  seven-thirty  treasury  notes.  The 
treasury  notes  were  not  received  until  January  13th.  The  Loan  Committee 
was  to  apportion  the  loans  among  the  banks  in  proportion  to  their  capital; 
also  the  several  payments  to  be  made  on  account  of  the  loans,  and  the 
proceeds  of  the  sales  of  the  securities  as  made  by  the  government  for  account 
of  the  associates.  They  were  also  to  divide  the  securities  among  the  banks, 
and  to  pay  over  the  interest  as  it  was  collected.  The  final  cash  reimburse- 
ment was  made  January  13,  1862,  and  the  residue  of  the  loan  unsold,  being 
not  quite  $4  millions,  was  distributed  amongst  the  banks  immediately  after- 
wards.    The  securities  under  this  loan  were  taken  at  90. 

The  second  subscription  by  the  banks  to  the  seven  and  three-tenths  notes 
was  made  October  i,  1861,  and  a  third  loan,  in  a  subscription  to  six  per 
cent,  bonds  at  ;>bout  eighty-nine  and  a  third,  was  made  November  16th. 
The  last  bonds  jnder  this  subscription  were  delivered  March  5,  1862. 
Although  the  bonds  declined  while  the  operation  was  going  on,  they  were 
above  the  subscription  rate  when  it  was  tloseci.  While  this  operation  was 
going  on,  loan  certificates  were  issued  to  thirty-nine  of  the  fifty  banks.  The 
largest  amount  at  any  time  outstanding  was  $21,960,000,  between  the  }d  and 
7th  of  February,  1862.  They  bore  interest  at  sevon  per  cent.,  which  was 
paid  to  the  banks  which  held  them.  Nineteen  banks  received  $149,247 
more  than  they  paid.  The  Loan  Committee  in  their  report  on  these  proceed- 
ings say:  "Of  all  the  great  interests  of  the  country,  no  one  has  been  more 
affected  than  the  banking  interest,  nor  has  any  other  contributed  more  for 
the  preservation  of  our  country  and  its  government.  To  the  banks  of  the 
three  cities  of  New  York,  Boston  and  Philadelphia  the  people  of  the  United 
States  owe  a  debt  of  gratitude,  especially  to  the  banks  of  this  city,  who  in 
August  last  took  the  lead  in  expressing  their  confidence  in  the  stability  of  the 
government  of  this  country,  by  placing  at  risk  the  capital  of  their  stock- 
holders for  its  maintenance.  But  for  such  support  it  would  have  been  revo- 
lutionized." 

The  independent  treasury  was  suspended  by  act  of  Congress,  August  5, 
1861,  so  far  as  to  allow  the  Secretary  of  the  Treasury  to  deposit  money 
obtained  by  loan  "in  such  solvent,  specie-paying  banks  as  he  may  select," 
and  he  was  apparently  authorized  to  draw  on  those  banks  in  disbursements 


1 


4t)o 


A  HISTORY  Oh'  BANKING. 


i 

ill 


n 


of  public  money;  but  Secretary  Chase  did  not  use  this  permission.  Mc 
required  the  loans  to  the  government  to  be  paid  over  into  liie  government 
depositories.  At  the  same  time  the  preparation  of  the  government  securi- 
ties was  so  delayed  that  they  could  not  be  delivered  to  the  banks.  "It  was 
under  these  circumstances  that  the  banks  in  New  York  resolved,  on  the 
28th  of  December,  1861,  to  suspend  specie  payment.  *  *  •  The  sus- 
pension of  specie  payments,  therefore,  is  to  be  traced  primarily  to  the  patri- 
otic efforts  of  the  banks  in  the  great  cities  to  sustain  the  government."* 
A  conservative  bank  movement  followed  the  suspension,  but  after  April, 
i86a,  there  was  a  rapid  expansion  of  loans,  deposits  and  circulation, 
accompanying  the  premium  on  gold  and  silver. 

The  banks  of  KentucI'  v  had  not  suspended  in  January,  1862.  These, 
with  the  banks  of  Ohio  and  Indiana,  were  the  only  ones  in  the  country,  with 
some  scattered  exceptions,  which  still  held  out.  There  was  a  great  .strug- 
gle in  Ohio  as  to  whether  the  Board  of  Control  should  allow  the  Bank  of  the 
State  to  suspend.! 

To  the  authorities  at  Washington  it  seemed  that  the  resource  of  loans 
from  the  banks  was  not  adequate  to  the  fmancial  necessities  of  the  time. 
The  expenditures  were  already  $1  million  a  day  .md  very  rapidly  increasing. 
The  banks  having  nearly  all  suspended,  there  was  great  fear  that  a  continu- 
ation of  borrowing  from  them  might  lead  to  a  repetition  of  the  trouble  of 
1814,  and  that  suspended  banks  would  manufacture  currency  for  the  pur- 
pose of  loaning  it  to  the  government.  These  misgivings  and  apprehensions 
furnished  the  motive  of  the  legal  tender  act  of  February  23,  1802,  by  which 
the  government  undertook  to  help  itself  by  the  issue  of  an  irredeemable 
treasury-note  currency. 

We  have  already  seen  that  he  who  Is.sues  notes  borrows;  that  he  lays 
hands  upon  the  value  money  in  circulation,  putting  his  promise  currency  in 
the  place  of  it.  If,  therefore,  a  country  has  a  metallic  circulation,  there  is  an 
immediate  fmancial  resource  at  the  disposal  of  the  government,  in  case  of 
war  or  other  calamity, — a  resource  which  is  strictly  limited,  however,  in 
its  amount  to  the  amount  of  this  metallic  circulation.  It  is  not  necessary 
that  the  specie  should  be  drawn  into  the  public  treasury.  It  suffices  to  sus- 
pend specie  payment  and  issue  treasury  notes  which  will  displace  the  specie 
without  depreciation,  until  the  limit  of  the  specie  circulation  is  reached. 
Beyond  that  point  the  exchanges  turn  adverse,  the  paper  depreciates,  and 
the  specie  is  exported.  At  the  outbreak  of  the  civil  war,  it  was  a  critical 
fact  in  the  fmancial  situation  that  the  federal  government  did  not  have  this 
resource  at  its  disposition,  because  this  resource  had  all  been  used  up  to  its 
utmost  limit  in  peace  time  by  the  banks,  to  whom  it  had  been  given  away. 
There  were  a  few  men  in  Congress,  in  1862,  who  were  prepared  to  say  to 
the  banks  that  they  must  at  once  retire  their  circulation ;  that  they  had  been 
allowed  to  have  this  privilege  up  to  that  time,  but  that  then  the  public 
needed  to  use  it  for  its  own  purposes  and  coulu  no  longer  afford  to  give  it 


•  Superintendent,  1863. 


*  iC  Binker'i  Maguine,  b^. 


THE  BANKS  AT  THE  OUTBREAK  OF  THE  CiyiL  H'AR.    46t 


iiway.  Correct  ;is  this  position  iinqui'stionably  w;is,  it  encountered  at 
once  the  political  obstacle  that  no  such  vij^orous  measure  could  be  carried, 
and  also  it  was  inadequate  as  a  financial  measure,  because  it  would  take 
time;  and  the  chief  advantage  of  the  linancial  resource  olTercd  by  a  metallic 
circulation  is  that  It  can  be  used  without  a  moment's  delay,  while  plans  for 
making  loans  or  laying  taxes  are  being  realized. 

The  government  treasury  notes  were  therefore  issued  on  top  of  a  circu- 
l;;tion  which  was  already  full  of  bank  notes,  and  the  consequence  was 
immediate  depreciation  of  both. 

The  critical  period  with  regard  in  the  finances  of  the  war  was  from  July, 
1861.  to  January.  1862.  The  real  issue  was  whether  the  war  should  be  con- 
ducted on  inflation  or  contraction.  There  were  those  who  argued  that  the 
people  should  be  cajoled  into  the  support  of  the  war  by  an  apparent  pros- 
perity, produced  bv  paper  money  inflation;  but  it  does  not  appear  that  the 
administration  adopted  this  view,  although  it  failed  to  rise  to  that  pitch  of 
courage  and  energy  which  the  temper  of  the  people  would  have  w.irranted. 
The  issue  appears  rather  to  have  presented  itself  to  the  men  at  Washington 
as  this:  Whether  they  should  make  plans  for  a  long  war,  which  would  need 
thorough  and  comprehensive  measures  for  its  management,  wherebv  they 
might  be  led  into  expenses  which  would  later  prove  to  have  been  unneces- 
sary; or,  whether  they  might  adopt  for  a  short  time  make-shift  expedients, 
since  the  war  would  be  short.  Beft)re  this  question  of  policy  was  settled, 
the  delay  produced  an  aicumulation  of  difficultv  which  was  used  as  an 
argument  to  force  the  adoption  of  desperate  measures. 

During  the  year  x't^bz.  the  circul.ition  of  the  banks  in  Maine,  New  Hamp- 
shire, Massachusetts,  Rhode  Island,  New  York,  New  Jersey,  and  the  cities 
of  Philadelphia  and  Baltimore  increased  about  thirty-eight  per  cent. ;  lo.ms 
increased  about  twenty-two  per  cent.  There  was  a  universal  movement  of 
expansion  and  inflation.  Bankers  declared  "that  the  circulation  had  ex- 
panded in  spite  of  efforts  to  keep  it  within  limits;  that  bills  issued  did  not 
come  back  for  redemption:  and  that,  on  the  other  hand,  fresh  suppli'.'s  were 
constantly  called  for  by  depositors  and  customers  having  to  provicle  for  pay- 
rolls or  to  make  other  petty  payments."* 

By  an  act  of  Congress.  July  17,  i8b2.  the  issue  and  circulation  of  fractional 
notes  was  made  punisiiable  by  a  fine  of  not  more  than  five  hundred  dollars 
and  imprisonment  for  not  more  than  six  months. 

From  January  to  July,  i<S^-)>,  the  bank  circulation  of  Boston,  New  York, 
and  Philadelphi;i  was  reduced  nearly  thirty  per  cent. 

The  banks  of  Boston.  New  York,  and  Philadelphia  loaned  the  govern- 
ment Ijiso  millions,  in  old  legal  tenders,  in  September,  iS(n,  to  meet  a 
special  emergency.  Unfortunately  this  loan  also  was  attended  with  some 
dissatisfactio.i  on  the  part  of  the  banks,  on  account  of  delay  in  furnishing 
the  one-year  legal  tender  notes  bearing  five  per  cent,  interest,  which  were 
to  have  been  given  for  the  loan.f 


I'i 


! 


\ 


*  17  Banke  '•  Maguine,  409;  413.  « 


t  18  banker!  Magaiinc,  008;  679. 


PERIOD    VI. -FROM    1803. 


CHAPTIiR     XVII. 


Thi:   National    Bank   System. 


his  annual  report  for  1861,  Secretary  Chase  discussed  an  issue 
cf  government  treasury  notes  to  serve  as  currency,  but  rejected 
that  plan  on  account  of  its  "possible  disasters."  He  then 
turned  to  a  scheme  whose  principal  features  he  described  as 
"first  a  circulation  of  notes  bearing  a  common  impression,  and 
authenticated  by  common  authority;  second,  the  redemption  of  these  notes 
by  the  associations  and  institutions  to  which  they  may  be  delivered  for  issue; 
and  third,  the  security  of  that  redemption  by  the  pledge  of  United  States 
stocks  and  an  adequate  provision  of  specie."  He  adopted  the  computation 
of  the  bank  circulation  at  $202  millions,  of  which  $1^0  millions  was  within 
the  federal  lines.  "The  whole  of  this  circulation  constitutes  a  loan  without 
interest  from  the  people  to  the  banks,  costing  them  nothing  except  the  expense 
of  issue  and  redemption,  and  the  interest  on  the  specie  kept  on  hand  for  the 
latter  purpose;  and  it  deserves  consideration  whether  sound  policy  does  not 
require  that  the  advantages  of  this  loan  be  transferred  in  part  at  least  from 
the  banks,  representing  only  the  interests  of  the  stockholders  to  the  govern- 
ment, representing  the  aggregate  interests  of  the  whole  people." 

The  President,  in  a  message  of  January  17,  1863,  expressed  his  anxiety 
about  the  increasing  depreciation,  and  suggested  a  taxation  of  bank  circula- 
tion to  prevent  it,  and  also  proposed  to  make  the  banks  bear  their  just  share 
of  public  burdens;  but  the  point  of  the  communication  was  that  a  uniform 
currency  was  necessary  for  public  credit  and  for  contracting  loans.  "  Such  a 
currency  can  be  furnished  by  bank  associations  organized  under  a  general  act 
of  Congress,  as  suggested  in  my  message  at  the  beginning  of  the  present 
session.     The  securing  of  this  circulation  by  the  pledge  of  United  States 


THE  NATIONAL  RANK  SYSTEM, 


46? 


hnnds.  as  therein  suKfjestcd.  would  still  further  f.icilitate  lo.ins.  by  incre.isinR 
the  present  and  causing  a  future  demand  for  such  bonds."  In  short,  the 
motives  of  the  lef.islation  which  established  the  national  bank  system  were 
political.  It  w  is  desired  to  change  the  currency  in  a  way  to  make  it  more 
useful  in  the  financial  exi>{encies  of  the  f^overnment,  and  to  borrow  all  the 
banking  capital  of  the  country  as  a  further  financial  resource.  There  was  no 
consideration  of  favoritism  to  the  banks  and  they,  almost  without  exception, 
opposed  the  change.  The  arrangement  might  also  be  regarded  as  a  com- 
promise by  which  the  government,  instead  of  depriving  the  banks  of  the  privi- 
lege of  circulation,  shared  it  with  them.  The  first  national  bank  act  was 
passed  f-ebruary  25.  i'^''3.  but  it  was  superseded  by  the  act  of  June  },  1S64. 
The  as.sociations  were  to  be  organized  for  twenty  years,  with  a  minimum 
capital  of$so,(XX);  the  smallest  deposit  for  circulation,  %}o,iKyo;  on  such  depos- 
its of  United  States  bonds,  qo  cents  on  $1  of  market  value,  not  exceeding  par, 
were  to  be  furnished  in  circulating  notes  by  an  officer  of  the  Treasury 
Department.  The  lowest  denomination  of  notes  was  to  be  $1  until  after 
resumption;  then  $5.  The  notes  were  to  be  a  legal  tender  to  and  from  the 
government  and  to  be  received  at  par  by  all  the  banks  in  the  system.  The 
banks  in  the  sixteen  leading  cities  were  required  to  maintain  a  reserve  of 
lawful  money  equal  to  twenty-five  percent,  of  their  circulation  and  deposits, 
and  all  others  fifteen  percent. ;  three-fifths  of  the  fifteen  per  cent,  in  the  latter 
case  might  be  kept  on  depc^sit  as  a  redemption  fund  in  one  of  the  sixteen 
large  cities,  and  one-half  of  the  reserve  of  the  large  cities  might  be  kept  In 
New  York.  Quarterly  reports  were  required  to  be  published  in  the  news- 
papers, but  this  was  changed  in  1869  to  the  requirement  that  five  reports 
should  be  made  annually,  at  any  time  when  the  Comptroller  of  the  Currency 
might  call  for  them.  A  tax  of  one  per  cent,  per  annum  was  laid  on  the 
average  amount  of  the  circulation,  and  one-half  of  one  per  cent,  on  the 
deposits,  and  the  .same  rate  on  the  capital  stock  not  invested  in  United  States 
bonds.  The  two  last  were  repealed  March  3,  1883.  The  act  of  March  }, 
1863,  allowed  only  a  smaller  proportion  of  circulation  to  capital  for  large 
banks,  so  that  a  bank  with  more  than  $3  millions  capital  could  have  only 
sixty  per  cent.  The  total  amount  of  national  bank  circulation  was  fixed  at 
$300  millions,  of  which  half  was  to  be  apportioned  amongst  the  States  and 
Territories,  according  to  population,  and  half  according  to  existing  banking 
capital  and  business.  This  apportionment  proved  impracticable,  and  after 
the  close  of  the  war  there  was  complaint  that  national  banks  could  not 
be  formed  in  the  Southern  States.  The  limit  was  therefore  increased  by  $S4 
millions,  July  \2,  1870;  this  amount  to  be  apportioned  to  the  States  and 
Territories  which  had  less  than  their  quota.  The  act  contemplated  a  with- 
drawal and  redistribution  of  the  surpluses;  but  this  also  proved  impracti- 
cable. 

Power  was  expressly  reserved  to  Congress  "at  any  time  to  alter,  amend, 
or  repeal"  the  national  bank  act.  We  have  the  testimony  of  Amasa  Walker 
that  the  bill  was  passed  against  great  opposition,  without  discussion,  by  the 


I  ■■ 


li 


4«4 


A  HISTORY  OF  BANKING. 


eflbrts  of  the  Secretary  of  the  Treasury,  and  hy  pjirty  tactics,  and  that  it 
would  not  have  been  passed  without  the  last-mentioned  provision.* 

In  1874  the  New  England  States  had  $70.3  millions  and  the  Middle  States 
$8.7  millions  of  circulation  in  excess  of  their  quotas  in  a  distribution  of 
$1S4  millions.  The  only  other  surpluses  were  small  ones  in  the  District  of 
Columbia,  Colorado,  and  Montana. 

The  number  of  national  banks  established  before  November  28,  i86j, 
was  135.  A  year  later  the  number  was  S84.  It  was  in  iSbs  that  the  banks 
went  over  almost  in  a  body  to  the  new  system.  Amongst  the  reasons  oL 
the  i'hiladelphia  banks  for  changing,  it  was  said  that  "the  city  banks, 
which  are  considered  the  fat  goose  at  Harrisburg,  to  be  plucked  at  pleasure, 
will  be  removed  from  that  body  forever,  "f 

The  national  bank  system  had  no  sooner  gone  into  operation  than  a 
necessity  was  experienced  for  some  system  of  assorting,  redeeming,  and 
exchanging  the  issues.  An  Assorting  House  was  planned  by  bank  officers, 
at  New  York,  in  July,  186s.  t 

An  act  of  March  3,  186s,  levied  a  tax  of  ten  per  cent,  upon  any  bank 
notes  paid  out  by  any  bank,  not  being  national  bank  notes,  after  July  i,  1866. 
This  measure  was  carried  in  the  House  by  only  one  majority. 

The  Secretary  of  the  Treasury  desired,  in  1864,  that  the  national  banks 
should  be  reserved  for  federal  taxation  only.  The  loan  bill  of  June  30,  1864, 
contained  a  provision  that  the  interest-bearing  notes  of  the  government  should 
not  be  legal  tender  for  the  redemption  of  bank  notes.  Gold  banks  were 
provided  for  by  the  act  of  July  13,  1870.  They  were  to  deposit  bonds  of  the 
United  States,  bearing  ir-terest,  payable  in  gold,  and  to  obtain  notes  for  not 
less  than  $s  to  the  amount  of  eighty  per  cent,  of  the  par  value  of  the  bonds. 
The  notes  were  to  bear  a  promise  to  pay,  on  presentation,  in  gold  coin  of 
the  United  States. 

It  is  evident  that  the  national  bank  system  is  a  product  of  the  history  of 
American  banking.  Every  important  point  in  it  stands  out  as  the  result  of 
some  long  and  important  line  of  experience  during  the  previous  seventy  or 
eighty  years.  It  was  built  upon  the  model  of  the  New  York  free  banking 
law,  but  it  contained  the  mature  judgment  of  the  leading  public  men  of  the 
time  in  regard  to  the  good  and  bad  features  of  that  system,  and  the  guaran- 
tees that  were  necessary  under  it.  Its  first  great  feature  was  that  it  was 
national  and  federal, — a  thing  which  in  the  days  of  misery  under  the  local 
bank  system  people  had  sighed  for  again  and  again  as  an  unattainable  hope. 
It  is  a  great  point  which  must  be  put  to  the  credit  of  the  civil  war  that  it 
brought  about  what  was  otherwise  a  political  impossibility.  The  federal 
laws  and  the  federal  administration  of  justice  had  not  always  stood  up  un- 
flinchingly in  defense  of  sound  doctrine  and  the  integrity  of  institutions;  but 
they  had  proved  on  many  occasions  the  safeguards  of  these  things  against 
State  laws  and  State  courts.     It  was  a  tremendous  gain, — one  which  people 


*  aa  Banker's  Magazine,  174. 


1 19  Banker's  Magatine,  410. 


%  10  Banker's  Magazine,  198, 


THE  NATIONAL  BANK  SYSTEM. 


465 


iiow-a-days  do  not  realize  or  appreciate,  unless  they  know  what  the  previous 
history  had  been;  that  currency  bani<ing,  and  with  it,  to  a  larjjc  extent,  the 
whole  system  of  banking,  were  brought  under  federal  control. 

The  "national  currency,"  to  call  it  by  its  technical  and  proper  name, 
was  a  uniform  currency,  such  as  the  people  had  dreamed  of  and  hoped  for 
for  fifty  years,  and  such  as  never  has  existed  anywhere  else  over  a  territory 
even  a  fraction  as  great.  If  it  has  not  produced  an  equalization  of  the  ex- 
changes, it  has  reduced  the  internal  exchanges  of  the  country  to  an  insignifi- 
cant minimum.  It  would  be  a  disaster,  if  it  were  possible,  to  do  away  with 
the  rate  of  exchange  which  distributes  capital  and  currency  as  they  arc 
wanted;  but  it  is  a  marvellous  thing  that  that  re-distribution  should  be 
brought  about  at  such  slight  expense  over  a  whole  continent,  as  is  now  the 
case  amongst  us. 

This  banking  system  incorporated  and  employed  the  SutTolk  system, 
around  local  centers,  throughout  the  country,  embodying  another  of  the 
most  successful  experiments  of  the  previous  time. 

Various  attempts  have  been  made  to  construe  and  explain  the  system  of 
the  national  currency,  because  it  may,  in  fact,  be  turned  into  very  different 
lights.  The  government  guarantees  the  note-holder,  because  it  is  itself  a 
debtor  of  the  bank;  and  it  promises  to  pay  the  note-holder,  who  is  a  creditor 
of  the  bank,  instead  of  paying  the  bank;  and  in  order  to  be  in  a  position  to 
do  this,  it  takes  back  the  evidence  of  its  debt  from  the  bank,  holds  it  in  its  own 
control,  and  when  the  exigency  arises,  sells  it  to  somebody  else, — that  is, 
contracts  a  loan  elsewhere,  in  order  to  pay  the  note-holder.  It  has  been 
objected,  and  on  theoretical  grounds  with  complete  good  reason,  that  this 
system  guarantees  only  ultimate  re-payment,  not  cash  redemption  or  true 
convertibility;  but  in  practice  the  note  is  as  good  after  the  bank  has  failed  as 
before,  and  continues  on  its  course,  the  holder  probably  never  knowing  that 
it  was  issued  by  a  bankrupt  institution,  until  it  finds  its  way  to  the  redemp- 
tion bureau,  it  must  be  noticed  that,  in  this  respect,  the  national  currency 
differs  essentially  from  its  prototype  in  New  York.  In  that  State,  when  i 
bank  belonging  to  the  free  bank  system  failed,  its  notes  became  uncurrent. 

It  seems  a  much  more  useful  and  correct  construction  of  this  currency 
system,  however,  to  regard  it  as  reaching  substantially  the  same  result 
which  is  reached  in  the  Bank  of  England,  under  the  act  of  1844,  constituting 
the  Issue  Department  as  an  independent  thing,  entirely  separated  from  all 
the  vicissitudes  of  the  banking  business.  The  Bank  of  hngland  loaned  on 
a  book  debt  to  the  government,  and  the  notes  of  the  Issue  Department  are 
based,  as  respects  what  might  be  called  their  permanent  amount,  on  this 
debt,  and  the  fluctuating  margin  (which,  it  is  true,  in  that  case  is  very  large), 
rests  upon  an  equal  amount  of  specie.  In  our  national  bank  system  bonds, 
as  circulating  evidences  of  a  government  loan,  are  bought  and  deposited, 
and  the  notes  issued  upon  them  may  properly  be  regarded  as  constituting 
an  internal  core  or  permanent  part  of  the  total  circulating  medium  of  the 
country,  with  a  provision  for  cash  redemption  upon  the  variable  margin. 
30 


466 


A  HISTORY  OF  BANKING. 


This  system  of  currency  has  put  an  end  at  once  and  forever  to  the  old 
banker's  trick  of  expansion  and  contraction.  The  present  generation  knows 
of  ;that  trick  hardly  by  tradition.  It  is  now  complained  that  the  national 
bank  note  currency  is  not  clastic.  That  is  very  true.  The  old  local  bank 
note  currency  had  the  highest  conceivable  elasticity,  and  instead  of  varying 
with  the  requirements  of  the  market,  the  banker  was  forever  operating  on 
its  elasticity  by  his  arbitrary  will,  and  Imparting  fluctuations  to  the  market. 
In  order  to  stop  him  from  doing  that,  a  stringent  system  has  been  made, 
which  has  taken  away  the  elasticity  altogether;  but  if  there  was  no  other 
currency  than  a  national  bank  note  currency,  limited  far  within  the  require- 
ment, and  combined  with  a  large  component  of  specie,  the  specie  margin 
would  give  all  the  elasticity  which  would  be  required. 

It  is  not  possible  that  any  government  issue,  whether  direct  like  the 
greenbacks,  or  indirect  like  the  national  currency,  should  ever  be  elastic. 
It  cannot  be  conducted  on  the  banking  principle,  but  only  on  the  currency 
principle.  We  have  attempted  to  maintain  the  government  issue  on  a 
reserve  of  specie,  which  was  planned  at  first  to  be  one-third  of  the  paper, 
in  reliance  on  an  old-fashioned  empirical  rule  of  banking;  but  a  government 
issue  can  never  be  made  to  imitate  the  ebb  and  flow  of  the  operations  of  the 
market.  If  the  issues  are  put  out  in  the  payment  of  expenditures  and  are 
recovered  in  taxes,  the  two  movements  take  place  within  some  limit  of 
time  which  is  a  tax  period ;  but  this  does  not  resemble  the  movements  of 
the  market  any  more  than  a  petty  and  arbitrary  mechanism  resembles  an 
organism.  What  sustains  a  bank  note  circulation,  as  we  have  had  repeated 
opportunity  to  observe,  is  the  pulsation  of  borrowing  and  lending,  or  buy- 
ing and  paying,  which,  within  a  limit  of  time,  for  successful  transactions, 
must  equal  each  other.  At  every  pulsation  the  bank  notes  are  called  into 
existence,  and  are  canceled.  A  permanent  government  issue  cannot  be 
made  to  operate  in  a  way  in  the  remotest  degree  resembling  this. 

Under  the  operation  of  the  paper-money  system  which  existed  for  fifteen 
years  after  the  war,  prices  and  credits  expanded  to  absorb  the  paper. 
Every  autumn  a  stringency  was  experienced  in  the  money  market  when  the 
demand  came  for  moving  the  crop.  Under  the  pressure  of  the  demand 
created  by  this  stringency,  the  Secretary  of  the  Treasury  re-issued,  in  1809, 
$i.S  millions  of  the  treasury  notes  which  had  been  retired  by  Secretary 
McCulloch.  They  were  afterwards  withdrawn.  In  1871  a  like  sum  was 
issued  and  withdrawn.  During  these  years  the  effect  of  the  central 
redemption  system  was  to  draw  more  and  more  of  the  free  capital  of  the 
country  into  New  York;  but  the  expansion  absorbed  it  all  and  renewed  the 
stringency.  In  1872  the  amount  issued  was  about  $5  millions,  and  there 
was  great  difficulty  to  get  it  back.  These  phenomena  all  pointed  to  the 
fact  that  the  system  was  working  to  a  crisis.  The  cycle  of  phenomena  of  a 
paper  money  inflation  was  regularly  repeated  up  to  the  point  where  the 
next  thing  to  be  expected  was  a  crisis.  The  stage  of  investment  in  fixed 
capital  had  already  been  reached  for  a  year  or  two.     In  this  case  it  consisted 


-itmamm 


THE  NATIONAL  BANK  SYSTEM. 


467 


ofniilroad  building,  by  means  of  bonds  floated  in  the  eastern  market.  The 
rate  of  interest  had  also  been  rising  year  by  year.  In  the  summer  of  1873, 
a  Granger  agitation  at  the  West  frightened  investors  from  the  railway  secu- 
rities, and  brought  distress  upon  the  new  railroad  enterprises,  and  upon  the 
bankers  who  were  negotiating  railroad  securities.  September  Sth,  the  New 
York  Warehouse  and  Security  Company  failed,  followed  by  two  or  three 
banking  firms  with  railroad  enterprises  on  their  hands.  A  run  for  legal 
tenders  began  at  New  York,  where  a  certain  arbitrary  and  artificial  prefer- 
ence had  been  established  for  them.  September  i8th.  Jay  Cooke  &  Co. 
failed  on  account  of  a  crisis  which  had  occurred  in  the  affairs  of  the  North- 
ern Pacific  Railroad,  for  which  they  were  negotiating  bonds,  and  to  which 
they  had  made  advances.  The  run  for  deposits  now  began  in  the  country 
towns,  although  without  excitement  or  panic.  The  country  banks  called 
home  their  deposits  from  the  redemption  cities,  and  the  latter  from  New 
York.  The  New  York  banks  called  for  it  from  Wall  Street,  where  it  was  in 
use.  Rates  for  money  rapidly  advanced  and  prices  fell.  On  the  20th  the 
Union  Trust  Company  and  two  or  three  other  banks  and  trust  companies 
suspended.  The  stock  exchange  became  a  scene  of  panic  and  prices  fell 
with  great  rapidity  twenty  per  cent,  or  thirty  per  cent.  The  stock 
exchange  was  closed,  as  the  only  means  to  arrest  the  panic,  and  it  remained 
closed  for  ten  days.  On  the  following  Monday,  the  22d,  the  gold  exchange 
also  closed;  gold  at  112.  On  the  20th  the  Associated  Banks  had  pooled 
their  stock  of  greenbacks  and  i.ssued  certificates  at  seven  per  cent.,  good  at 
the  clearing  house,  which  were  to  be  loaned  for  seventy-five  per  cent,  of 
the  value  of  the  securities  deposited.  The  amount  of  these  issued  between 
that  date  and  January  14,  1874,  at  New  York,  was  $26.5  millions;  at  Phila- 
delphia, $6.7  millions.  The  President  and  Secretary  of  the  Treasury  were 
in  New  York  on  Sunday,  the  21st,  and  refused  to  use  any  part  of  the  $44  mil- 
lions of  the  withdrawn  greenbacks,  but  they  ordered  bonds  to  be  bought 
by  the  Assistant  Treasurer,  with  his  cash  on  hand.  This  produced  the 
same  result,  for  before  January  ist,  over  $26  millions  of  the  withdrawn 
greenbacks  were  issued.  The  amount  of  bonds  purchased  was  $12  mil- 
lions. The  situation  was  one  really  of  a  suspension  of  paper  payments  in 
New  York  City."  There  had  been  no  panic  auMngst  the  merchants,  nor 
outside  of  New  York,  except  among  some  savings  bank  depositors.  Never- 
theless the  shock  to  credit  was  very  deep;  speculation  was  completely 
arrested;  industry  was  checked;  hours  of  labor  and  wages  were  reduced; 
and  a  liquidation  was  commenced,  which  lasted  five  or  six  years.  The 
number  of  bankruptcies  in  187-5  was  3,183;  liabilities  $228. 1  millions.  The 
failures  in  1874  were  3,830;  liabilities,  $is=).2  millions. 

The  session  of  1873-4  was  full  of  currency  schemes,  which  at  last  issued 
in  an  act  to  increase  the  note  issue  of  the  national  banks,  distributing  the 
increase  amongst  the  States;  and  the  banks  were  to  keep,  as  a  part  of  their 
reserve,  one-fourth  part  of  the  coin  which  they  received  for  the  interest  on 
the  bonds  deposited  for  circulation.     The  President  vetoed  this  as  an  infia- 


1^ 


% 


468 


W  HISTORY  OF  BANKING. 


tion  measure.  It  would  have  carried  the  bank  note  circulation  up  to  $400 
millions.  Another  section  in  it  provided  that  the  limit  of  the  greenbacks 
should  be  $400  millions, — that  is,  it  put  back  into  circulation  all  which 
McCulloch  had  retired. 

Another  bill  was  immediately  introduced,  which  became  a  law  June  20, 
J  874.  The  reserve  required  in  the  law  for  the  national  banks  was  restricted 
to  the  deposits,  and  a  redemption  bureau  was  provided  for  the  circulation, 
supplying  the  want  for  which  the  Assorting  House  had  been  planned.  Each 
bank  wns  required  to  deposit  in  this  bureau,  in  greenbacks,  five  per  cent,  of 
its  circulation,  which  might  be  counted  into  its  lawful  reserve ;  whenever 
bank  notes  were  presented  to  the  Treasurer  of  the  United  States  in  multiples 
of  $1,000,  they  were  to  be  redeemed  from  this  fund  and  charged  to  the 
banks  which  issued  them.  When  $500  were  so  withdrawn  from  the  deposit 
of  any  bank,  it  was  to  be  notified  to  make  it  good.  If  this  was  done,  new 
notes  were  to  be  issued.  The  redemption  at  the  redemption  cities  was  done 
away  with.  This  device  was  intended  really  to  keep  the  national  currency 
clean  and  in  good  order.  The  banks  were  also  allowed  by  this  act  to  deposit 
legal  tender  notes  and  take  up  their  bonds,  thus  reducing  or  entirely  with- 
drawing their  circulation.  The  limit  of  the  greenbacks  was  set  at  the  point 
where  it  then  stood,  with  the  ^26  millions  out, — that  is,  at  $382  millions. 

The  veto  by  President  Grant  of  the  inflation  bill  in  the  spring  of  1874 
was  really  the  turning  point  in  the  struggle  between  inflation  and  resump- 
tion. At  the  next  session,  the  resumption  act  of  January  14,  1875,  was 
passed.  Fractional  silver  was  re-introduced.  The  appreciation  of  the  green- 
back and  the  depreciation  of  silver  had  gone  so  far  that  the  fractional  coins 
could  be  maintained  in  circulation.  AH  charges  for  converting  standard  bul- 
lion into  coin  were  repealed.  All  limit  on  the  amount  of  national  bank  circu- 
lation was  removed.  This  was  in  concession  to  a  demand  for  free  banking. 
After  this,  therefore,  it  was  fiee  to  anybody  under  the  conditions  of  the  law  to 
organize  national  banks,  or  to  dissolve  ard  wind  up  the  same  at  will;  but 
whenever  any  new  banks  were  formed,  increasing  the  national  currency,  the 
Secretary  of  the  Treasury  was  required  to  redeem  greenbacks  for  eighty  per 
cent,  of  that  increase,  until  the  greenbacks  should  be  reduced  to  $300  mil- 
lions. This  was  construed  to  apply  to  the  increase  of  national  bank  notes, 
without  any  reference  to  the  reduction  of  the  same,  which  might  be  going 
on  at  the  same  time.  After  January  i,  1879,  the  Secretary  of  the  Treasury 
was  to  redeem,  in  coin,  any  legal  tender  notes  presented  at  the  office  of  the 
Assistant  Treasurer  in  New  York,  in  sums  of  not  less  than  §50.  In  order  to 
do  this,  he  might  sell  bonds  to  provide  the  redemption  fund.  During  the 
years  1878  and  1879,  the  gold  premium  was  steadily  reduced, — that  is,  the 
whole  paper  currency  advanced  towards  par. 

In  May,  1884,  during  a  temporary  stringency  in  the  money  market  at 
New  York,  it  again  became  necessary  to  issue  clearing  house  certificates. 
Between  May  i  =;th  and  October  ^d,  they  were  issued  to  the  amount  of 
$24.9  millions. 


THE  N/iTIONAL  BANK  SYSTEM. 


469 


The  charters  of  the  national  banks  began  to  run  out  in  1883  and  1884. 
In  anticipation  of  this,  the  act  of  July  12,  1882,  provided  for  their  extension 
for  another  twenty  years.  The  minimum  amount  of  bonds  requisite  to 
remain  in  the  national  bank  system,  to  be  on  deposit  for  circulation,  was 
» reduced  to  one-quarter  of  the  capital,  for  banks  with  less  than  $150,000 
capital,  the  minimum  capital  remaining  at  $50,000.  The  reduction  of  circu- 
lation under  this  law  was  limited  to  $3  millions  per  month,  and  a  bank 
which  had  reduced  could  not  increase  again  within  six  months. 

As  the  United  States  bonds  increased  in  value,  the  profitsof  the  circu- 
lation of  a  national  bank  declined.  When  the  charters  were  renewed,  the 
question  of  continuing  the  system  was  raised,  and  there  was  no  little 
hostility  to  it  manifested.  One  of  the  chief  subjects  of  complaint  was  that 
the  national  banks  get  double  interest  on  their  capital.  Every  bank  of  issue 
gets  double  interest  on  its  capital,  minus  such  deductions  as  must  be  taken 
into  account  for  taxes,  specie  reserve,  and  so  on.  If  the  bonds  must  be 
bought  at  a  premium,  and  only  90  cents  on  $1  of  their  par  value  can  be 
obtained  in  circulation,  the  deductions  are  so  important  that  the  special 
advantages  of  being  in  the  national  system  are  very  slight. 

The  greatest  amount  of  national  bank  notes  outstanding  at  the  end  of  any 
fiscal  year  was,  in  1882,  $358.7  millions.  In  spite  of  the  formation  of  new 
banks,  the  voluntary  withdrawals  reduced  the  national  currency,  in  1891, 
to  $167.5  millions.  This  is  in  a  total  net  circulation,  in  the  hands  of  the 
people,  as  current  cash,  of  $800  or  $900  millions.  As  these  banks  went  out 
of  existence,  or  out  of  the  system,  or  reduced  their  circulation,  the  amount 
of  greenbacks  deposited  by  them  in  the  Treasury  to  retire  their  circulation, 
as  it  should  appear  at  the  redemption  bureau,  increased  until,  in  18S7,  at  its 
maximum,  it  amounted  to  $97.9  millions.  According  to  the  current  view, 
this  was  so  much  money  withdrawn  from  circulation,  and  by  the  act  of 
July  14,  1890,  it  was  turned  into  the  available  funds  of  the  Treasury,  and 
the  Treasury  became  liable  for  the  redemption  of  a  corresponding  amount 
of  notes. 

Clearing  house  certificates  were  again  issued  at  the  time  of  the  Baring 
failure  in  1890.  Between  November  iilh  of  that  year  and  February  7th 
following,  the  amount  issued  at  New  York  was  $15.2  millions;  at  Philadel- 
phia, $8.8  millions;  at  Boston,  $5  millions. 

The  democratic  platform  of  1892  favored  a  repeal  of  the  ten  per  cent,  tax 
on  the  State  bank  circulation,  in  June,  1894,  a  bill  was  introduced  into 
the  House  of  Representatives  to  remit  the  ten  per  cent,  tax  on  State  bank 
notes  which  had  been  used  between  August  ist  and  October  15th  in  the 
commercial  crisis  of  1893.  An  amendment  was  proposed  repealing  the 
ten  per  cent,  tax  altogether.  It  was  lost,  172  to  10;,  and  the  bill  was 
defeated. 

The  financial  storm  of  1893  is  properly  called  a  panic.  By  various  steps 
taken  in  the  way  of  concession  to  silver  the  currency  had  once  more  been 
made  excessive,  independent  in  amount  of  the  demands  of  trade,  and  com- 


-:i^^-^si^>m£SVS3-;--,ee,r^ji 


}• 


470 


A  HISTORY  OF  BANKING. 


plicated.  The  doubt  had  so  far  been  quelled,  not  without  difficulty,  that  the 
different  kinds  of  currency  might  not  be  maintained  on  an  equality  with  each 
other,  and  that  one  portion  might  fall  below  gold  value.  The  constant  appre- 
hension was,  so  long  as  then-existing  legislation  remained  in  force,  that  the 
unit  of  existing  monetary  relations  would  be  changed.  Such  an  apprehension 
is  the  surest  ground  for  panic  which  can  be  offered.  The  panic  which  resulted 
when  this  fear  became  more  specific  was  not  a  bank  panic,  nor  a  crisis  in 
which  the  banks  had  any  responsibility.  When  it  broke  out,  important  weak- 
ness was  developed  in  the  banks  south  and  west  of  the  Potomac.  National 
and  State  banks  to  the  number  of  360  suspended,  of  which  343  were  in  that 
section.  In  a  number  of  cases  these  failing  banks  were  connected  with  each 
other  in  a  way  to  remind  us  of  the  old  combinations  of  weak  or  rotten  insti- 
tutions linked  together  for  mutual  support,  resulting  in  common  collapse. 
The  fact  was  also  developed  by  the  temporary  and  very  short  suspension  of 
a  number  of  the  banks  that  the  attempt  to  use  their  reserve  funds  in  the 
redemption  cities  had  been  carried  too  far,  and  that  they  were  at  the  mercy 
of  any  financial  st^  .•■m  which  might  arise  from  causes  far  outside  of  their 
responsibility,  and  which  might  precipitate  demands  on  them  so  suddenly 
that  the  agencies  of  steam  and  telegraph  would  not  avail  to  call  home  their 
funds  in  time.  Such  a  fear  as  then  existed  lest  some  part  of  the  currency 
would  lose  value  produced  the  most  sudden  and  intense  contraction  which 
could  possibly  be  operated,  and  the  banks  contributed  to  intensify  this,  so  far 
as  they  suspended  cash  payments  upon  a  weak  and  unfounded  assumption 
of  necessity,  instead  of  meeting  it  with  courage.  This  occasion  enforced 
once  more  the  most  positive  and  direct  lesson  which  we  have  learned  in 
regard  to  panics,  that  the  one  way  to  quell  them  is  to  meet  them  fearlessly 
and  in  face.* 

The  clearing  house  certificates  issued  at  New  York  between  June  21  and 
"November  i,  1893,  amounted  to $41,490,000.  The  largest  amount  outstand- 
ing at  any  one  time  was,  from  August  29th  to  September  6th,  $38,280,000. 
The  issue  at  Philadelphia  was  $10,965,000;  at  Boston,  $11,445,000.  The 
deposits,  which  had  been  increasing  at  New  York  City,  amounted,  Febru- 
ary 4,  1893,  to  $495.4  millions.  From  that  point  they  steadily  decreased 
until  August  19th,  when  they  were  $370.3  millions.  After  the  crisis  was 
over  they  immediately  began  to  increase  again,  and  on  December  22d  they 
were  $498  millions. 

From  1883  to  1893  the  annual  number  of  failures  was  about  11,000,  the 
average  liabilities  per  failure  about  $12,000,  the  assets  about  fifty-two  per 
cent,  of  the  liabilities.  In  1893,  the  number  of  failures  was  15,508,  the 
average  habilities  per  failure,  $24,632,  the  percentage  of  assets  to  liabilities, 
sixty.  In  1894  and  1895  the  failures  continued  numerous  (12,721  and 
13,013),  but  the  average  liabilities  per  failure  were  nearly  at  the  former  rate; 
still  the  percentage  of  assets  to  liabilities  remained  high,  53.7  and  55.7  per 


*  Noyes,  The  Bunks  and  the  Panic  of  1893. 


THE  NATIONAL  BANK  SYSTEM. 


AV 


cent.  These  figures  show:  i — that  the  failures  in  1893  were  in  the  large 
enterprises,  and  tiiat,  in  the  following  years,  they  reached  the  smaller  ones; 
and  2 — that,  in  all  these  years,  they  were  not  due  to  a  bad  state  of  trade, 
but  to  bad  conditions  which  brought  down  men  who  were  fairly  strong. 
Those  bad  conditions  must  be  sought  in  mistaken  legislation. 

The  last  noteworthy  incident  in  the  history  of  the  banks  is  their  attempt 
to  assist  the  Treasury,  in  1894,  in  the  maintenance  of  the  "gold  reserve." 
The  most  which  it  could  be  hoped  to  accomplish  was  to  win  time  for  public 
opinion,  or  political  combinations,  to  reach  a  point  at  which  some  radical 
and  effective  reform  of  the  currency  could  be  made. 

The  total  number  of  national  banks  organized,  down  to  October  }\, 
iSgs,  was  s«o23,  of  which  there  were  3,715  in  existence  at  that  date,  with 
$664  millions  capital  and  $536  millions  surplus,  owned  by  281, 190  share- 
holders. The  total  circulation  was  then  $213  millions.  Against  this  $23.7 
millions  had  been  deposited  in  lawful  money  with  the  Treasurer,  although 
treated  by  him  as  available  means.  There  were  east  of  the  Mississippi, 
2,611  banks  with  $527  millions  capital;  west  of  it,  1,104  with  $135  millions 
capital.  The  average  annual  dividenJ  for  twenty-six  years  was  8.4  per 
cent. ;  in  1894,  it  was  6.8  per  cent. 

Since  the  national  banking  system  was  adopted  the  local  banks  have  had 
no  "  history."  it  has  been  almost  impossible  to  obtain  statistical  informa- 
tion in  regard  to  them.  In  the  year  i89i>,  the  Comptroller  of  the  Currency 
obtained  a  sufficient  number  of  returns  about  State  banks,  private  banks,  and 
trust  companies  to  approximate  to  the  desired  information. 

There  were  seventeen  States  and  Territories  from  which  the  information 
was  incomplete.  Reports  from  3,774  State  banks  were  received,  showing 
that  they  had  capital,  $250  millions;  surplus,  $101  millions;  deposits,  $712 
millions;  loans,  $697  millions.  Reports  of  dividends  earned  by  928  of  them, 
in  twenty-four  States,  showed  an  average  of  7.2  per  cent,  per  annum. 
Reports  from  242  trust  companies  were  received;  capital,  $108  millions; 
surplus,  $84  millions;  loans,  $433  millions;  deposits,  $546  millions.  One 
thousand  and  seventy  private  banks  had  %3}.2  millions  capital;  $10  millions 
surplus;  $81.8  millions  deposits;  $85.4  millions  loans.  The  total  banking 
capital,  including  surplus,  of  banks  of  all  classes,  was  nearly  $1,600  millions, 
of  which  the  national  banks  had  five-eighths. 

Four  States  and  one  Territory  require  no  reports  from  banks  organized 
under  their  laws;  six  others  require  only  one  report  in  a  year.  Thirty  States 
require  that  the  reports  be  published  in  the  local  newspapers;  twenty  give 
reports  about  banks  in  annual  or  biennial  reports;  six  make  no  provision 
for  publishing  information  about  them.  Fourteen  States  allow  banks  to 
issue  circulation;  nineteen  prohibit  circulation;  several  have  no  law  on  the 
subject.  Twelve  States  have  no  provision  for  the  examination  of  banks  by 
State  officers.  Seven  States  have  no  restrictions  on  bank  loans;  nine  pro- 
hibit loans  to  officers  or  employees;  most  of  them  prohibit  loans  on  the 


I 


472 


A  HISTORY  OF  BANKING. 


bank's  own  stock;  twenty-four  have  no  requirement  for  a  cash  reserve. 
Three  States  own  invest;nents  in  bank  stock. 

These  facts  show  that  the  local  bank  systems  are  now  still  as  hetero- 
geneous and  crude  as  they  ever  were,  that  it  is  as  vain  to  hope  for  concord 
and  co-operation  between  the  States,  in  reference  to  banks  of  issue,  as  it 
ever  was,  and  that  State  legislation   is  far  behind   national  legislation  in 
,     respect  to  sound  and  intelligent  treatment  of  this  subject. 


On  the  first  page  of  this  history  we  found  the  public  preoccupied  with 
the  question:  How  shall  we  get  a  currency?  Throughout  the  history  we 
have  seen  them  struggling  with  the  question :  How  shall  we  get  enough 
money  to  do  our  business  with  ?  They  have  believed  that  somebody  must 
provide  a  currency,  that  there  would  not  be  any,  or  would  not  be  enough, 
if  banks  did  not  provide  it.  They  have  also  believed  that  there  was  some 
great  economy  possible  in  the  use  of  paper  for  money.  Hence  they  have 
wanted  money,  plenty  of  money,  and  they  have  wanted  it  cheap.  Scheme 
after  scheme  has  been  proposed  and  tried  for  realizing  the  gain  which  it 
was  believed  that  cheap  money  could  produce  for  the  public ;  that  is,  for 
those  who  buy  and  use  currency.  This  gain  has  been  pursued  as  the  al- 
chemists pursued  the  philosopher's  stone,  by  trial  and  failure.  Whether 
there  be  any  such  gain  or  not,  our  attempts  to  win  it  have  all  failed,  and 
they  have  cost  us,  in  each  generation,  more  than  a  purely  specie  currency 
would  have  cost,  if  each  generation  had  had  to  I  jy  it  anew.  The  privilege 
of  selling  to  the  public  the  cheap  money  oii  which  they  had  set  their 
hearts,  either  in  the  form  of  paper  or  base  metal,  has  been  ibught  for  with 
rapacity,  and  with  social  and  political  abuses  of  the  gravest  character. 
States  which  provide  coinage  of  the  most  perfect  kind  win  no  profit  from  it; 
on  the  contrary,  it  comes  under  the  head  of  a  useful  and  necessary  public 
expenditure.  The  State  can  win  only  by  treason  to  the  high  function 
which  it  has  assumed,  for  no  other  reason  than  to  guarantee  to  the  public 
absolute  integrity  in  its  money ;  it  must  debase  the  coinage  and  set  its  seal 
on  a  lie.  Banks  which  furnish  a  bank-note  circulation  of  the  best  kind  can 
win  nothing  from  it  but  payment  for  furnishing  a  convenience  to  such  an 
extent  as  the  public  may  want  it.  To  win  more  they  must  perpetrate  some 
fraud  on  the  currency,  such  as  those  which  banks  did  perpetrate  throughout 
this  history.  The  history  shows  that  they  did  not  win  by  it.  The  revul- 
sions to  which  the  system  was  subject  overwhelmed  them  in  every  decade. 
The  notions  on  which  the  system  was  based,  and  which  are  mentioned  at 
the  beginning  of  this  paragraph,  are  proved  to  have  been  delusions,  dis- 
astrous to  everybody  concerned,  including  those  who  tried  to  profit  by  them. 

At  the  moment  of  this  writing,  the  turmoil  and  confusion,  the  conflict 
of  opinions  and  projects,  the  clash  of  political  schemes,  in  and  around  the 
currency,  are  as  great  and  mischievous  as  they  ever  were.     The  banks  have 


THE  NATIONAL  BANK  SYSTEM. 


473 


but  a  very  subordinate  share  in  it,  and  are  not  to  blame  for  any  part  of  it. 
Eight  or  nine  hundred  millions  of  paper  rest  on  a  specie  reserve  which  was 
originally  planned  for  three  hundred  and  forty-six  millions,  and  that  upon  a 
fallacious  plan.  The  stability  of  this  currency  has  been  maintained  for  two 
years  by  arbitrary  purchases  of  gold,  involving  a  manipulation  of  the  foreign 
exchanges.  Such  manipulation  may  be  excusable  under  great  stress  of  other 
dangers,  but  it  is  perilous  to  some  of  the  greatest  and  most  delicate  interests 
of  the  country.  Theoretical  and  practical  financiers  must  agree  that  this 
manipulation  is  a  subject  of  grave  apprehension,  all  the  more  because  it  is 
beyond  the  power  of  an^  man  to  foreesee  or  estimate  the  consequences 
in  their  remoter  reactions  and  more  extended  complications.  The  operation 
only  wins  time.  It  is  no  remedy.  When  the  respite  expires,  if  no  sound 
measures  have  been  adopted,  the  problem  is  still  there,  greater  and 
more  oppressive  than  ever,  and  complicated  with  the  consequences  of 
arbitrary  interference  with  one  of  the  most  important  and  most  delicate 
parts  of  the  financial  system.  In  the  meantime,  the  factions  produced  by 
various  dogmas  about  the  currency,  by  interests  engaged  in  it,  and  by  party 
intrigues  to  profit  by  it,  have  grown  fierce  and  stubborn.  They  exhaust 
their  strength  in  making  a  deadlock.  We  are  in  a  financial  crisis  which  is 
becoming  chronic,  and  which  will  be  solved  by  a  great  disaster,  unless  we 
can  rally  knowledge  and  statesmanship  to  deal  with  it. 


THE   END. 


INDEX. 


AccoMMfiDATioN  paper,  IS,  10,  (>4,  oo,  9?,  loR, 

170, 170, 200,  311,  ni,  371 ;  loans,  in,  101. 

Accountability,   itx),  177,  34J,  381,   38s,   3o<, 

417. 
Act,  the  "  Bubble."  6,  10;  legal  tender,  447;  of 

1844,461;  Kansas-Nebraska,  4^3. 
Adair,J  ,  131. 
Adams,  J.,  34;  J.  Q.,  07,    100.   loi,  101,  101, 

aoo-1,  210,  214,  222,  203,  20s,  271-i,  2Jm, 

288,  200,  2Q2,   209,   301,    3^2,    Hn. 

"  Advertiser,'' Detroit,  404;  Louisville,  loi, 

"Advocate,"  Boston,  no. 

Alabama,  banks  in,  01,   104-6,  241,   202,  270, 

272,  292,  297,  3'9-33.  37*-».  4M- 
Alsop,  R.,  28i. 

"  American,"  New  York,  288-9,  306-7. 
American  Antiquarian  Society,  1. 
Anarchism,  171. 
Andrews,  J.,  2lo,  3S0. 
"  Annual  Register,"  187. 
Ant.igonism,  sectional,  187. 
Anticipations,  14,  16. 
Appleton,  N.,  37,  170,  181,  187,  209,  333.  *68, 

291,  138,  34"- 
Appraisal,  see  5/j)'. 
Arbitration,  31.  3^,  103,  220,  263. 
Aristocracy,  see  iMoney  poucr,  and  Hanks,  an- 

tipathji  to. 
Arkansas,  banks  in,  296,  331-4,  391-7,  4' Si  4^1- 
Ashmead's  Reports,  383,  347. 
Assumption,  176. 
Atwater,  J.,  50-1. 
Auction.  187. 

Auditor's  certificates,  60,  1 58-9,  331,  407-9. 
Augusta  vs.  Earle,  149. 
"Aurora,"  49,  50,  214. 

Bank,  accommodation,  189,  190,303;  accounts, 
177,  330,  373-4,  170,  191,  196;  assets  wasted, 
394,  43V,  Ijalances,  64,  94-s,   102,   in,  im, 

289,  315,  341,  428; buildings,  391,  394;  cipi- 
tal,   108,  204,  314,  318,  358,  401,  414,  411, 

fictitious,    30,    31,    37,    73,    85,    87,    \IM), 

133-4,  336,  310;  convention,  76,  271,  271, 
287-93,  324,  328,  398,  401,  447;  definition, 


I,  t.,  38;  democrat!;,  190,  279;  failures,  101, 
333,  137,  342.  M7i  3";^,  308,  44S  4^2;  in- 
terest, 74,  97,  270,   204,   •-02,  41?;  lo.ins,  2? 

(see  Dt'bli) to  directC'rs,  90,  92,  90,  102, 

106,  124,  112-3,  170,  177,  211,  219,  111,  117, 
121,  324,   126,  311,  341,  104,  172,  y,--.,  v.s, 

401,  404,  40?,  to  governn'cnt,  01,  oH, 

82,   4^8-9,   400-1,   to  insolvents,    124, 

to  politicians,  isi,  172,  398, stimu- 
lated, 212;  mania,  id,  is,  89,  109,  211,  200, 
204,  274;  national,  12,  20,  22,  2=;,  27,  40,  1.2, 
08-70,  74-s,  100-1,  192,  190,  224,  207,  271-4, 

279,  280,  292,  148-9;  officers  politically  ineli- 
gible,   318, malfeasance,    los,    409-10; 

reserve,  428;  stock  subscriptions,  211;  war, 
see  'Bjiiks,  jtitit<.illiv  to  and  H^iik  of  U.  S. 
2d   war  on;  wrecking,  248,  114,  110,  171. 

Bank — Only  such  inoiition  of  any  bank  is  here 
included  as  occurs  outside  of  thu  sections  about 
the  banks  of  the  State  in  wliich  it  was:  Agri- 
cultural of  Ireland,  2iX);  Albany,  20;  Alexan- 
dria, 20;  America,  50,  208,  384;  Baltimore, 
IS,  181;  Brandon,  277;  Brooklyn,  280;  Cam- 
den (N.  J.),  17s;  (S.  O,  289;  Cape  Fear,  187; 
Chemical,  4';M;  City  (Baltimore),  loo;  Com- 
monwealth (Ky.),  141,  198;  Darien,  loo; 
Eagle,  171 ;  England,  20,  20,  28-9,  12,  14,  7;, 
111,  2s8-9,  200-7,  2H2-4,  102,  40s;  Farmers 
and  Mechanics',  28();  France,  20;  Giraid,  so, 
299;  Hartford,  20,  42;  Hudson,  107;  Illinois, 
119;  Indiana,  110;  Insurance (Ga.),  2S0;  Ken- 
tucky, 201,  11(1;  Louisiana,  si;  Louisville 
Savings  Institute,  2S(j;  Manhattan,  47,  S2, 
220,  208-0;  Marble  Mfg.  Co.,  172;  Maiietta, 
18;  Maryland,  20;  Massachusetts,  19,  20,  11, 
143-4;  Mechanics'  (N.  Y.),  '.■;  Merchants' 
(N.  O,),  124,  301;  Metropolis,  219;  Missouri, 

280,  384;  Morris  Canal  and  B'k'g  Co.,  171, 
208,  401,  40s;  New  Haven,  2S9;  New  Hripe 
Bridge,  172;  New  1';  iladelphia,  i^'i;  North 
America,  11,  12,  14-19,  26,68,  141-4,  192; 
North  Amer.  Trust,  333-4,  317,  107;  North 
Carolina.  106;  Northern  Liberties,  167;  North- 
ern and  CentraWEng.X  266;  Owl  Creek,  106; 
People's  (Me.),  280;  Pennsylvania  (I.)  14,  15; 


476 


INDEX. 


(II.)  r.,  -IV;  I'lidiiix  (N.  Y.),  -.oS;  riaiitcrV 
(G.I.),  sH(>;  (Tciin.),  270;  I'rovlileiuc,  ao; 
RiMl  Estate  (Ark),  a<x.;  (N.  C),  .jii;  Kich- 
iiioiul,  20;  Schuylkill,  v><»;  Soulhwolctn  K. 
R.,  1S7,  3V>-4o,  3S4,  ;3<>;  Smith  (iaroliiia, 
30;  State  (Ina  ),  4.jS;  (N.  J),  107;  (N.  Y), 
10,  33,  )i-4,  41;  Suffolk,  301,  in;  Tennes- 
see, lis;  Union  (Mass.),  20;  (MJ.),  330;  (l.a.), 
347;  Vincennes,  i<n. 

Bank  of  the  Uniteil  States  (firM),  30,  32,  36-S, 
13-s,  48-^7,  0^,  «>H,  70,  72-1,  103;  constilii- 
tionality,  48,  si,  oS;  jrovcrnment  shares,  33-31 
hostility  to,  30,  27,  40;  taxation,  4S. 

Bank  of  the  United  States  (second),  27,  67-Si, 
f<7-0,  os-ioo,  101-7,  100-10,  112-17,  '--' 
124,  I2Q,  111,  m,  ns-o,  140,  isi,  mi, 
104,  100,  180-1,  iS-,-21(i,  2SS,  410,  see  lijiih. 
itiitioUitI;  arbitrary  action,  2117-S,  217,  22*. ; 
Baltimore  debt,  98,  iHi;  branch  drafts,  os, 
180-7,  2"'i  *"'»  2'>'-")  23a,  224;  thartti 
amendments,  cm)-7,  200;  charges  against,  201, 
2os-();  Cincinnati  banks  and,  in;  constitu- 
tionality, 100,  110,  ns,  140,  187,  i(»i,  108, 
317;  corrupt  action,  2os,  300,  211-14;  hx- 
change  Coiiim.,  20s,  211,  see  U.  S.  Ti'koJ 
Tciiii.;  Exchange  dealings,  iSs,  187,  201, 
348-9;  expenses,  190;  governintnt  shares,  72, 
lib,  \(><i-\,  211,  324,  32(),  220,  281,  20i; 
government  directors,  2nri,  ;i-,,  3211;  intrigue 
against,  214;  and  local  banks,  see  Ctirriiicy, 
rigtilalioH  of;  losses,  00,  1S7;  notes,  228, 
230,  282,  30S,  11x1,417;  financial  providence, 
188,  208;  political  power,  99,  102-7,  2()s-7, 
3 10,  317,  220-1;  power  to  discount,  111; 
and  public  stocks,  9<>,  104,  18s,  202,  207; 
and  public  works,  see  Inlenul  liiiprovtimnls; 
recharter,  198-201,  209,  210,  221,  22s;  in 
repose,  188,  101;  regulator,  see  Currency 
regulation;  Savannah  banks  and,  112,  180; 
services,  U)<),  198-0,  204;  soundness,  210, 
313;  state  of,  98,  112,  116,  211;  suspension, 
97;  taxation,  91,  100,  101,  los,  100-10,  ns, 
146,  ISI,  iss;,  104,  2os;  fs.  Malstead,  114; 
vs.  Planters'  Bank,  141 ;  vs.  Owens,  201 ;  war, 
too,  no,  124,  120,  111,  146,  im-s,  104,  iSo, 
191-2,  197,  2tx);  Western  debt,  07,  1 1  =!,  200-7, 
212-11,  222.  See  Branch  system,  "Branch 
notes,  Bank  notes. 

United  States  Bank  of  Pennsylvania,  55,  220, 
22S-10,  216,  2q8,  208-9,  273,  27s,  280-1, 
286-Qi,  20S-108,  119,  122,  127,  118-47,  IS0-4, 
366,  381,  189,  397,  401;  assignments,  is2-i, 
362-4;  branch  at  New  York,  284-s,  206,  104, 
162;  catastrophe,  211,  344-7,  Iso;  a  Credit 
Mobilier,  220;  distribution  of  stock,  210,  342; 
clique,  319;  conspiracy  to  defraud,  3S0;  cor- 
rupt action,  227-9,  119-40,  362;  cotton  specu- 
lations, 260,  276-7,  284,  206-104,  308,  i4=;-o, 
see   Cotton;    credit,    305-7,    341;    dividend, 


101,  n8,  141;  Exchange  Coinm.,  22^-7;  in- 
vestments,  20N;  lii|uidalion,  101-4;  loans  to 

ollicers,  320-7,  3H),  14s,  is«>-i, to  I'cnn., 

28s,  14S-0;  losses,  104-s;  as  national  bank, 
21)1),  V)i ;  notes,  280,  103,  los,  m;  London 
agency,  )si,  sKcJaudon,  S.;  policy,  10s;  post 
notes,  see  7'i'\/ )/()/is  ,•  reports,  381,  107,  I4S-7, 
3So;  suits  against,  381,  340,  iso-i;  suspends, 
372,  104;  triumph,  290;  vs.  Primrose,  133. 

Bank  of  the  Commonwealth  of  Kentucky  vs. 
Wislar,  141. 

Banker,  18c),  415. 

Bankers,  431. 

Banker's  Maga/inc,  170,  171,  3^0,  ?fii,  361, 
181. s,  100,411,  417-10,433,434-19,  443-(M). 

Banking,  art  of,  411-2,  see  Hanlis,  nianat;enient 
of:  Biddle  theory,  iSi,  iss-o,  204,  208,  270, 
38o,2oi,no-7;  in  Eiigland,  2!i8; excessive,  121 , 
178;  fraudulent,  144,  ISO,  108,  173-1,  313, 
314,  274i  in,  121,  12s,  320,  317,  3(X),  108, 
404-S,  420.2,  444,  4s  1-2,  see  Vanlis,  abuses 
IfV  and  tricks  of;  free,  171,  113-11,  117,  no-7, 
100,  108,  10s,  402-4,  419,  410-20,  420,  411-S, 
44".444i44«-'>i,4>2,4S4,  404;  issue,  181-2, 
113,  140,  IS4,  410-20,  40s,  471 ;  paper  money, 
IS,  21,40,  68,  00,  104,  no,  12s,  117,  no, 
141-6,  i()8.2(K);  principle,  11,  4(>o;  rules,  10, 
20;  regulation,  274,  318,  401-2,  418;  State,  44, 
SI,  418,  see  'Banlis  of  the  Stales;  sicresy  in, 
20,  so,  174,  210,  302,  10s,  41s;  successful, 
44S-0;  theory  of,  2,  1,  23,  38-n,  10,  108, 
200,  2SO,  11  1-12,  180,  ,(16,  418,  see  lianlting, 
liiditle  theory;  and  trade,  reciprocal  stimulus, 
111;  wild-cat,  144,444;  varieties  of,  416. 

Bank  notes,  convertibility,  o,  17,  6s,  81-1,  145, 
27''.  447.  4='0,  4<'s;  country,  30-7,  10,  66,  82, 
los,  167-71,  308,  311,  lis,  3<K),  36S-0,  422, 
42s,  428-0,  410;  deceptive,  100,  2ss,  dis- 
appearance, S6,  220,  342;  decline  in  impor- 
tance, 428;  endorsing,  322,  4S0;  exchange  of 
17;  foreign,  412-11,  41s,  4='>>  4''.  44'; 
issuedby  schools,  8s,  Ko,  128,402;  not  money, 
112,  4SI-4;  national,  see  Currency,  national 
(hanli);  per  capita,  4S4;  range  of  circulation, 
18,  S7,  111;  ratio  to  specie,  224,  214,  241, 
is8,  418,  4S4;  redemption,  106,  ns,  168-9, 
170,   178,  iKs,  211,  2SO,  111,  31S,  ito,  36S-6, 

102,  416-18,  422-1,  42s,  444-s,447-si,4'i1. 

464, 46S, vexatious,  448, 4S0;  signing,  06, 

1S4,  186;  southwestern,  26<)-7o,  270,  206, 
209,  114,  see  Hanlis,  southwestern;  tax  on, 
IS,  74,  88,  100;  security,  see  Banltins;,  free; 
of  suspended  banks,  412-13;  uncurrent,  276, 
418;  unlawful  trafTic,  152.  See  Cwrrirna' and 
Branch  notes. 

Banks,  abuse  of,  317,  340-1,  343-4,  367-8,  392-3, 
1OS,  39S,  408-9,  41s,  418,  see  injustice  to,  and 
Taxes  remitted;  abuses  by,  11,  70,  71, 81, 8s-6, 
100-8,  111,   172,  216,  246-8,  274,  283,  310, 


?'i"..^rj_m  i-f  i-L.-iiii.,^-U!.,MeajL-iJ  l_?;i  j) 


lOfiK^mrsmm 


INDHX. 


477 


?n,  in,  ii'i,  i;-.,  13?,   120,  ".i()-.j(),   ni-i,| 

llxi,  V)3,  1"H,  170,  1«c>,  ^i*!-;,  401,  404,  ^iiH;  I 
;itul  auriiulturc,  3,  ?,  n,  v»,  107,  341-0,  ".00,  ] 
4lu,  413;  aiilipatliy  to,  12,  30,  37,  40,  4v-?4. 

01,  (>N,  |(H>,  lol-llo,  133-1,  I4'(,  IS3,  \U1, 
334,  371,  27?,  37«,  1V»,  lM<i,  V»i,  VM,  4<'". 
'4<)<;,  41s,  443,  4M-4;  atloinpts  to  ili;>ciplinc, 
sec  Ctvil  .iiillioiih;  |).ilikru|  I,  >co  'liuiili- 
itipliy;  bogu-i,  111,  114,  441,  4iii;  hook- 
kecpinj^,  sec  'lijiik  tuctniiils;  cause  of  ruin,  I 
"•'>>  I7i>  '7''i  l'>''i  4<'1,  4<><j;  tliiiiio  coiUriill- 1 

illK,  24M,   132,    IV),   171,    V)4-0,  4(..S;  i.Hiil'lll- [ 

atinns  (if,  SCO  H,iiik  iiitHiSl;  courts  and,  <i.c 
Civil  jiitliKiilr;  criticism  of,   i.|,    i()i,    ii'i, 

173-1, 1S7, 171 ,  402, 41H),  451-4;  iii'posit,  s"., : 

70,    04,     107,    3I.S-M»,     22..,    ;-,!,    2-.l>,     202-4,^ 

377-Xi,  3H7,  2'!^;  ili'tcrioration  of  su.-.pciuUil) 
177-.H(),  407;  aiul  education,  4,  ';3,  i«;i,227, 1 
}IS,  411;  dfronlcry  of,  2i>'i,  10s;  evils  of,  | 
loi,  los-s,  171,  3'ii,  3^7,  403,  4«K),  411; 
false  returns,  170,  241,  247,  3?2,  no,  1S3,  | 
101 ;  favoritism  in,  101-4,  -"'1  ^4";  K"'''i  4'M; 
good,  107,  111,  vn,  174,  4<x<,  403;  aiul  I 
government,  see  f-iscil  J'linctioiis,  and  Civit 
autlloiily;  injustice  to,  241,  4ik)-i,  400,  seo 
ijl'ine  of;  lawlessness,  i:;i-2,  los;  legislation  I 
about,  see  C'ni/ J«/«o/-i/)';  local  31,  48,  ?s, 
00,  70,  71-0,  70,  <)',,  io«,  110,  1 1 1-1 S,  l')0, 
3IO-1 1,  31S-10,  222-4,  211-^7,  202,  207,  271, 
371*,  301,  414,  404,  400-472;  losses  of,  171, 
371,  10s,  4<>i,  420;  losses  on  acci^unt  of,  ^o, 
07,  lOH,  r,0-7,  30X,  370,  1S3,  402,  404; 
managciiKiit  of,  |!;o,  i(«.,  17 -,-7,  100-402, 
40.S,  sec  H'liikiiig,  art  of,  and  lh,-o:y  of;  mutil- 
ation ofrecor.ls,  lol,  407;  National,  410,  4.|7, 
4<)2-72;  organization  by  debtors,  212,  110, 
311,  117,  171,  4<'">-4,  see  lUiik  cjp1t.1l, 
fictitious,  and  fi,jiiks,  iihiiscs  hy;  out-of-State, 
216;  pet,  see  Biiiiks,  deposit;  politics  and,  1=;, 
43-4,  50-4,  59,  08,  7'.  7'.  77.  '>'>,  "><>.  '7'--< 
192-1,  210,  21S,  220,  250,  2'.^-H,  27i,  27S, 
313,  IIS,  31H,  3''0-4o,  3^0,  362,  302-1,  W'. 
39S,  408,  41s,  449,  461,  see  Civil  interests; 
privileges,  is,  so;  power  to  disallow,  10,  see 
Territories,  IhriiLs  in;  ratio  of  productive  in- 
vestments, 2<'H,  310,  328,  447;  remedies 
against,  283,  287,  340,  3s  1 ;  run  on,  271,  iss, 
389,  400,  427,  444,  447,  407;  Savings,  407;  ser- 
vices, 4S0;  Southwestern,  200,  277,  290,  200- 
300,  302,  304,  308,  iio;  State,  sec  B.iiiks, 
local;  the  State  and,  see  Civil  authority;  of 
the  States,  5,20-1,  2S,4<),  4S-0,  si -2, 08, 80-7, 
92,94,  108,  124,  144-s,  147-=;',  iso-oi,  1O4, 
i6s-6,  173,  176-0,  221,  234-S7,  114-14,  is8, 
16S-4I1,  411-1,  417-44S;  States  living  on,  see 
Taxes  remitted,  and  Baults,  abuse  of;  tax- 
ation of,  40,91,    IS'l,    I'M,   166,   180,    122,   152, 

442,  401,  464,  40();  tricks  of,  16,  37-8,42, 
104-6,  110,  140,440,406;  war  between,  120, 
42s;  wild-cat,  329.  444.  44S-50- 


Bankruptcy,  loi,  i:-,,  107,  3()7.7o,  370,  391, 
117,  140,  431,  427,  470. 

Harbour,  I'    I'.,  142,  101. 

Haring,  Sir  F.,  40;  liros.,  304,  307,  313,  J08, 
378,  383-1,  307,  104,  467,  4<J9. 

Barker,  J.,  60,  81,  173,  310. 

Harry,  W.  T.,  no,  214. 

Barter  ccunuiny,  3,  s,  23,  38,  31;  currency,  3, 
4>  03. 

Batard  vs.  Bayard,  101. 

Battle  At  Taylor,  101. 

Belcher,  (jov.,  10. 

Bcnelicenco,  V),  8((,  ",40, 

Hi'imelt,  Memoirs,  107. 

Hoiiton,  T.  H.,  100,  30I,  307,  314,  221,  333. 

W\.\\\  &  Humphreys,  100,  303,  304,  308, 

liibb,  C.  M.,  118. 

"  Hicknell's  Reporter,''  304,  v|3,  1S1,  161, 

Biildle,  <;,,  ss,  184;  K.  k,,4i)i;  N.,  si,  ss,  166, 
183,'I8S-31<),  30S,  270,  271-8,  284-s,  2S,>;.93, 
208-104,  124,  14S-0,  iso-i,  1S4,  IS7,  104, 
sec  lliiil;iiiji.  Riddle  theory;  helps  New  York, 
227,  2<'''<.  27=;.  2<X'.  see  'Policy;  T.,  201,  140. 

Bill-kiting,  20b,  302. 

lilllis,    178, 

Bills  of  credit,  l-O,    12S,    128,    140-2,    is'^,    178, 

iHo,  241,  127,  314,  178,  104. 
Bills  of  excliange,  207,  270,  297.  120,  170. 
Bimct.illiMii,  4S4. 

Biimey,  II.,  si,  ss,  180,  218,  318. 
Blacktords  Reports,  1  so. 
Blackstoiie  Ciaiial,  171. 
Black  well,  J.,  3. 
Bloilget,  44,  SO. 

Blair,  V.  I'.,  1 11,  107,  214,  216. 

Bodley  vs.  Ciaither,  128. 

Bogus,  Gov.,  412. 

Bolliiian  E.,  is,  so,  7s,  144. 

B.ind  of  bank  officers,  212-3. 

Bonds,  federal,  459-00,  407-S;  railro.nd,  4s!, 
407;  Moltord,  354,  197;  iron,  403;  State,  14s, 
3S7,  200,  200,  30s,  312,  114,  117-21,  124, 
112-4,  118,  341,  14s,  308.9,  170,   181,  100, 

10s,   107,  401,    410-11,    414,    44s,  4SO-2, 

lax   handling,  241,   18-,,   104,   106,  411, 

loaned  to  banks,    221,    27(j,    282,    21K), 

fire  loan,  240,  290,  30s;  Texan,  345-0, 

Bonilication,  276. 

I'iooin,  110. 

r.oycott,  458. 

Bovle,  J.,  no,  118. 

Branch  notes,  so,  70-00,  05,  00,  17S,  i''4-s; 
system,  28,  31,  79-80,  07,  100,  201,  230,  148, 
40S-0,  410,  418-0,  441,  446;  drafts,  icc  Bank 
of  the  United  States  (second). 

Breese's  Reports,  is8. 

Briscoe,  J.,  1. 

Briscoe  vs.  the  Bank  of  the  Commonwealth  of 
Kentucky,  118-4S,  too,  241,  no,  127,  314, 
101-4. 


478 


INDEX. 


if  1 


J74,  :78,  J90,  3^7, 


Bronjon  I.,  ri^,  17V 
Brown,  J.  M.,  Ho,  iv>. 
BiickiicT  H.  I-.,   117. 
Hulliciii  systiiii,  33V4,  371 

170,  .(.|3,  4.t<l,  4M. 
Bulls,  srn;ill,  1 19. 
Burr,  A.,  43. 
butler,  M.,  yy. 


Cadwailadfr,  Gen.,  104,  307. 

C'llitornin,  banks  in,  41s,  431,  4^1,  4^8. 

(^aliioiin,  J.  (...,  74,  303,  3H7. 

Clallciulor,  J.  T.,  4.). 

Campaign  ( I H24),  i((3;  (1S3H),  101;  (1N33),  200, 
30S,  31.),  331;  (1S40),  199,  J47. 

Campbell,  G.  W.,  ov 

Campbell  v\.  Union  Bank,  386. 

Canada,  4,  m. 

Capital,  3,  s,  <),  23-1,  30-30,  61,  io«,  306,  2<9. 
(H>,  201-4,  304,  310.  310,  357,  41s;  distri- 
bution, 233,  360. 

Capitalists,  102. 

Caprice,  popular,  1 10. 

Carey,  H.  C,  so;  M.,  17-8,  44,  49,  74-6,  95, 
103. 

Carpet-baggers,  187, 

Cash,  2,  oi,  07,  118,  410,  438, 

Cass,  I..,  Kxj,  199,  313-14. 

Catron,  J.,  isi. 

Central  Bank  vs.  Little,  180. 

Chamberlain  J.,  3. 

Charles  II.  1. 

Charles  River,  6, 

Charters,  17s,  117-18,  140-1,  344,  3S3,  365,439, 
4^3;  repealability,  133,  173,  314. 

Chase,  S.  P.,  14s,  400-1. 

Checks,  415. 

Chevcs,  L.,  47,  68,  95,  97-100,  111,  lis,  183, 
186. 

Cholera,  304. 

Circulation,  value  of,  8,  126;  redistribution,  464. 

Citizens'  Bank  vs.  Assessors,  416. 

Civil  authority  and  banks,  10,  11,  36,  43-4,  46, 
02,  OS,  70,  S1-4,  80,  88,  90-2,  no,  IS2-1, 
IS8,  104,  100,  170-7,  210,  21S-0,  24s,  247, 
271,  278,  281,  28s,  3i<)-ii,  3".  "■!.  i=7> 
329,  340,  34t>,  3io-2,  302,  371,  370,  3H7, 
304-s,  401-2,  40s,  412,  41S-10,  420,  427, 
411-1,  417,  410,  444-s,  449-so,  4S2. 

Civil  interests  and  banks,  18,  20,  26,  49,  51-2, 
54,  s8-9,  08,  100,  130-6. 

Clark,  T.,  129. 

Clay,  H.,  54,  146,  200,  209,  331,  363,  347-8. 

Clayton,  A.  S.,  201;  J.  M.,  301,  304. 

Clearing  House,  418,423,  430;  association,  458; 
certificates,  418,  428,  457,  467-70. 

Coin,  202. 

Coinage,  117,  41s,  472;  frac'ional,  450. 

Coining,  private,  453. 


Collection,  see  Debts  .imi  Slay. 

Collectors,    frauds,    see    Citrrony,  fijuJiiUiil 

(onvi'rsmn. 
Collier,  J,  A.,  310 
Collins,  127,  134. 
Colnian,  J,  8. 
"Comfort,  A  Word  nf,"  6. 
Commerce,  S2;  internal,  27s. 
"  Commercial  Advertiser,"  38S, 
"  Commercial  List,"  us. 
Commission,  Carlisle,  12. 
(>)mpaMies,  Joint  Stuck,  t>. 
Competition,  120. 
Confederacy,  416. 
Confidence,  30,  110,  il6,  409,  43s. 
Congress,  14,  is,  314-is,  331,  371,  370,  2S1, 

3.SM,  141,  14S,  .(Hi;   petitions  to,  221. 
Connecticut,  banks  in,  4,  7,  43,  04,    113,  io,S, 

1-0-1,  21s,  302,  311,  417,  410-30. 
Conspiracy,  420. 

Contraction,  71,  76,  00,   104-s,  120,  171,  189, 
212,  221,  221,  2S0,  284.S,  3<xi,  300, 10H,  101, 
100,  107,  40s,  410,  431-4,  4S7. 
Contracts,  s8,  120-V),  112,  110,  14.),  412. 
Convention,  anti-bank,  27.);  see  Bjiik  Coiivi'ii- 
liiiii;    commercial,  297,  303,  308;  constitii- 
lional,  374. 
Convertibility,  sec  Bjiik  notes. 
Corruption,  public,  ljo,  356. 
Corporation,  322,  149. 

Cotton,  iK;,,  3SO-0O,  367-9,  370,  37S-6,  383, 
284,  201-2,  200-104,  300,  308,  321-s,  14s, 
100,  171,  370-80  ;  speculation,  see  H.mli  of 
the  United  StJtes  of  Penn. ;ircguhtor  of  ex- 
changes, 303. 
Counterfeiting,  17,  18,  3s,  67,  02-1,  106-7,  '87, 

274.  ^47-  3=i7,  301,418,437,  455. 
Coup  it'etJt,  427. 

"Courier,"  Boston,  3SS  ;  Charleston,  433. 
"Courier  and  lni.|uirer,''  107,  203. 
Court,  old  and  new,  1  n-8. 
Courts  interfered  with,   see   Riots;  federal  vs. 

State,  404. 
Cowen's  Reports,  427. 

Cowperthwaite,  J.,  230,  376,  305,  345-6,  3S0. 
Cox,  S.,  3S7. 

Craig  ti.v.  Missouri,  141-2,  334. 
Cranch's  Reports,  3s,  48. 
Crawford,  W.  H.,  54,64,66,  76,  78,80-1,  100-2, 

104,  1 10-1 1,  114,  1 16,  220. 
Credit,  6,  15,  28,  30-1,  34>  94.  108,  133,  172-1, 
201,  206,  370,   311,  316,  376,   379-80,  387, 
428;    mutual,  328;   notes,  9,  74,  83,   101  ; 
open,  266  ;  right  to,  39,   123,  433  ;    system, 
24,208,  201,  208-69,  2901  299.  338,  392-^, 
410,  407. 
Crimes,  financial,  271,  350-1,  434,  see  Defalca- 
tions. 
Crisis,  33,   34,  37,  41,  44,  77,  95,  99,  103-4, 


LWDEX. 


419 


ii)o-ii,  tiH,  i(<7,  iH^,  ]]],  3^1-1,  3<A,  abi, 
3(i7-VX),  V>X,  41H,  430,  434-H,  410,  443,  444, 
440-7,  440,  4^1,  400.8,  409-70,  in  Distras 
aiiil  Tjnic. 

rrittoiiileii  r<.  ]onc»,  103. 

Oops,  moving.  4'»'>. 

Oinilu'rlaiHl  roail,  170. 

('urran,  J.  M.,  V)4. 

Curreiicy,  anitalion  about,  4H  ;  appreciation, 
no-7,  40.S  ;  briilgo  aiul  turnpike,  44  ;  iDiiti- 
iicMtal,  13,  n;  ilclinition,  4^0;  ilcproiiatcil, 
I,  H,  V-<,  OS-7,  70,  N3,  c/:;,()(i,  104-^,  U)7,  m, 
no,    100,    103,   173,   170,  iHo,  301,  30S,    375, 

3Hi,  307,  mo,  ■)n,  131,  134,  3';'!,  1^7,  v>7, 
4(H),  4(),H.o,  4!  1-13,411,444,448,  4^3-1,  471 ; 
of  liiiKlaiiil,  117;  experiment,  331;  convcrteil 
hy  collectors,  <)0,  no,  114,441;  government 
t'j.  bank,  400  ;  irredeemable,  447,  4(x) ;  lack 
of,  see  Medium ;  metallic,  40o-i,jsee  Bullion ; 
mixed,  l8S,m7;  National,  see  Pj(<cr-moihy, 
fidfial;  National  (bank),  401,  ^os-o,  40()-7i ; 
nomenclature,  401,  400  ;  non-exportable,  4  ; 
and  prices,  101,  118,  183,  188-0,310;  prni- 
ciple,  10-1,400;  receivable  at  Treasury,  21, 
54-S,  00,  71,  74-1,  07,  114,  184,  234,  201-3, 
277-8,  370-*),  204-i,  340,  150,  400  ;  redun- 
dant, 470;  regulation,  00,  72,  70,  100,  111; 
100,  171,  181,  208,  267,  2781286;  reijuire- 
ment,  24-39  ;  school  issues,  8s,  8(),  328,  403; 
schemes,  4O7,  472  ;  skins  as,  00,  01  ;  specie, 
see  liuUion  ;  stump  tail,  448  ;  theories,  74-s, 
116,  221,318,378,280,  318,  340,  41?,  4''''- 
ip,  472  ;  uniform,  70,  71,  70,  80-1,  95,  00, 
100,  111,184,108,^11,  118,411,410,401, 
46s;  value  of  the,  108;  wild-cat,  see  fl.?H/lis, 
wild-cat.  See  '^Bills  o/Cti'dil,  Paptr-moiuy, 
Diiiilt  uoti's,  Treaf.uiy  notes,  Treasury  drafts. 

Current  funds,  61,  283,  317. 

Gushing,  C,  14s. 

Dabney  vs.  Bank  of  the  State  of  South  Carolina, 
412. 

Dallas,  A.  ].,  oS,  70-1,  74-1  ;  G.  M.,  200. 

Dana  vs.  the  United  States  Bank,  1O3. 

Darrington  vs.  the  Bank  of  Alabama,  243,  394, 

Dean,  S.,  12. 

Deadlock,  414,  473, 

Dead  weight,  388-9, 

Debt,  imprisonment  for,  126,  120;  public,  12, 

72,   iQo,  202, banking  on,  10,32,401, 

for  Louisiana,  99,  payment,    181, 

204-5,  207,  211,  258. 

Debtors,  ^-^i  73,  120,  134,  137-Q,  148,  111,  119, 
170,  182,  240,  241,  268,  30s,  311-16,  321, 
104,  see  Indebtedness,  Banks  organised  by 
debtors,  and  Bank-wrecking. 

DeMs,  31,  41,  18,  87,  89,  122,  125,  111,  140, 
160-1,  161,  106,  176,  178,  180,  188-0,200, 
314,320,322,334;  bad,  320,  332,  364,373-80, 


40%  ;  prorogation  of,  13 1,  136  ;  southwestern, 
300,  104  ;  Slate,  317,  m,  371,  170,  400,  see 
'Bonds ;  stock  payments  on,  401. 

Defalcations,  111,  177,  310,  304,  10H-9,  i8i, 
180.  101,  417. 

Dolafield,  41 1. 

Delaware,  bank*  In,  18,  44,  17^,  347,  3»io. 

Delusions,  317. 

Democracy,  30,  100,  311,  113. 

"Democratic  Review,"  ill,  318,  183. 

Denio's  Reports,  II  1. 

Deposits,  21,  131,  411,  434,  407;  public,  n, 
*"i.  74.  7"-7.  T><  'Ml   <»7.   ""-''.    '".   '<7. 

101,  IO()-7,  3114,  310-31,  311-3,  310,  3l8;  303- 

1,  378-0,  380-1,387,300,  in,  110.7,140, 
184  ;  as  receivables,  331  ;  special,  07, 

Deposit-stock,  43,  171,  179,419. 

Depositors,  m. 

Depreciation,  8,  01,  67,  71,  77,  79,  m,  118, 
470,  see  Currency,  depreciated. 

Desha,  J.,  12,  114,  no. 

Detector,  Bank  note,  441,  411. 

Dexter,  A.,  30,  38. 

Dillon,  J.  B.,  117. 

Distress,  commercial,  17,  11,  40,  10,  77,  117, 
114,  140,  14S,  100,  180.1,  187,  100-1,304, 
300,332-1,211,  203-1,  200,  107,  330,  378, 
380,  i«)7,  400. 

Distribution,  see  Surplus  revenue. 

District  of  Columbia,  banks  in,  101,  415. 

Dividends,  287,  318,  343. 

Domett,  H.  W.,  347. 

Douceurs,  202. 

Douglas's  Reports,  313, 

Duane,  W.  J.,  214-17. 

Duer,  W,  31. 

Dunlap,  T.,  302,  341,  111. 

Durkee,  41. 

Duty  bonds,  14-1,  204,  371,  277,  3S1, 

Dyott,  Dr.,  337. 

"  Edinburgh  Review,"  366-7. 

Edwards,  N.,  91-4,  118-O0. 

Elasticity,  181-3,  181,  18S-0,  304,  20S,  218, 
lis,  317,  400,  see  Contrac'ion.  Iiifljtion. 

Elliot,  J.,  no,  111,  no,  179,  317,  147. 

Embargo,  03,  80,  104. 

Emigration,  104. 

Endorsement,  111;  law,  see  ."f/.;r. 

England,  banks  in,  200-8,  301-1,  107. 

Enterprise,  219. 

Equality,  social,  see  Banks,  antip.ithy  to. 

Erie  Canal,  300. 

"  Evening  Post,"  171,  263,  299. 

Examiner,  64. 

Exchange  checks,  404. 

Exchanges,  internal,  67,  74,  76,  77-°,  fio-i,  101, 
184-1,  187-8,  108,  204,  260,  201,  271-0,  281, 
288,  317,319,  34".  355-':',  .3<»i3"<^>4>'.44?; 


48o 


INDEX, 


i<  I. 


foreign,  77,  117,  189,  203,  219,  223,  275,  287, 
301,  303.  305,  366,  389,  458,  473;  equal- 
izing, see  Currency,  uniform. 

Excliequer,  145,  199,  354-5. 

Execution,  see  TJchls  and  Stay. 

Executive,  the,  198,  219,  290-1,  356,  467. 

Expansion,  iSs,  204,  424,  458,  460,  466,  see 
Inflation,  Elasticifj'. 

"Express,"  New  York,  282,  285,  301,  308. 

Expunging,  221-2. 

Extension  law,  320,  322,  372-6,  399,  449. 

Factory  system,  258. 

Farmers,  see  Banks  and  agriculture. 

"  Farmers'  Register,"  28. 

Favoritism,  political,  232,  263,  265. 

Fee  bill,  133. 

Felt,  J   B.,  1,82. 

Fillmore,  M.,  236,  313. 

Fiscal  functions,  25,  48-9,  53-4,  68,  70,  73,  98- 
9,  100-2,  110,  114,  166,  190,  197-8,216,  220, 
273,  278-9,  286,  291,  370;  Agency,  348; 
Agent,  15  3 ;  Bank,  349. 

Flagg,  A.  C,  173. 

Florida,  banks  in,  246-8,  272,  318-19,  370-2, 

4";. 

Ford,  T.,  93,  119,  158-9,  161,  255,  257,260, 

352,  408-10. 
Foreigners,  23,  35,  50-1,  53.4,  307. 
Foreman,  J.,  173. 
Forsyth,  J.,  78,  79. 
France,  264,  267. 
Franklin,  60. 

Free  banks,  see  Banking,  free. 
"  Free  Trader,"  323,  380. 
French  bill,  215,  217,  224,  229,  352. 
Frenchman,  the  Little,  70. 
"  Friendly  Monitor,"  70,  174. 
Frontier  society,  119. 

Gallatin,  A.,  3,  28,  35,  48-9,  51-2,  55,  63,  102, 

174,   186,   189,  208,  270-2,  305,   34' I  344, 

346,  •!57. 
Gambling,  104-5. 
Gayarre,  C.  A.,  61, 
George  111.,  52. 
Georgia,  banks  in,  48,  87,  112-14,  132,  178-80, 

240-1,  262,  317,  347,  367-70,  433.  457- 
Gibbs,  G.,  33,  35. 
Girard,  S.,  56,  76,  102,  295. 
Glasscock  vs.  Steen,  163. 
"Globe,"  134,215-17,264,348. 
Gold  discovery,  423-4,  453  ;    premium,  468  ; 

reserve,  471. 
Gold  and  Silver,  ratio,  1 17. 
Goldsmiths'  notes,  4. 
Good  Hope,  Cape,  189. 
Gouge,  W.,  15,  16,  37,  56,  70,  78,  96,  108,  125. 

>70.  '75.  '77.   '81-2,  1S4-6,  187,  iQo,  237, 


273.  277,  280,  287,  328,  337.  339,  344,  347. 

3S&-3.  3S5.  361-2,  364,  368,  396-7,  400,  403, 

405,  407. 
Grace,  days  of,  422-3. 
Grant,  U.  S.,  468. 
Green  vs.  Biddle.  1 28,  1 52. 
Greenbacks,  see  'Paper  money. 
Gregg,  W.,  431. 
Griswold,  G.,  285. 
"Guardian,"  Manchester,  303. 
Guthrie,  J.,  144. 

Hale,  N.,  168-70. 

Hamilton,  A.,   12,   13,   19,  22-8,31-4,56,71, 

181,   197,  220,  263,  432;   J.,  240,  273,  288, 

303. 
Hamilton  College,  43. 
Hammond,  J.  D.,  43,  71,   171,   173,  223,  264, 

272,  3'2- 
Mandy,  G.,  228,  339,  350-1,362. 
Harper,  J.  L.,  153,  184. 
Harris,  I.  G.,  438. 
Harris's  Reports,  351,  363,  382. 
Harrison,  W.  H.,  347. 
Hartlib,  S.,  1. 
Harvests,  424-5. 

Hawkins  i;s.  Barney's  Lessee,  128. 
Hayne  rs.  Beauchamp,  251. 
"Haz.nrd's  Register,"  56. 
"  Herald,"  New  York,  297. 
Hermann  Briggs  &  Co.,  267,  326. 
Hickman,  C,  351. 
Hill,  1.,  194-5,  197- 
"  Hints  on  Banking,"  172. 
Hope  &  Co.,  381,  436. 
Hottinguer,  215,  304-5. 
Howard's  (federal)  Reports,   216,    243,   393-4, 

■?Qt). 

Howard's  (Miss.)  Reports,  252,  380. 

Hudson's  Journalism,  216. 

Humphrey's  Reports,  60. 

Humphrey's  &    Biddle,   297,   300,    303,    304, 

108-9. 
Hutchinson,  T.,  1,4. 

Illinois,  260;  banks  in,  93-4,  157-61,256,  262, 
302,  331,  345,  398,  405-15,  424,  427,  447-9, 
4=14. 

Illinois  Canal,  302. 

Immigration,  94,  409. 

Incorporate,  power  to,  15,  18,  2',  51,  53,  143, 
'7',  '75,  3'3,  318;  by  general  law,  313. 

Indebtedness,  1 19,  121,  270,  282,  367,  404,  409. 

Indiana,  384;  banks  in,  62,  92,  156-7,  255, 
2&2,  330,  398,  405-6,  4:4,  427,  443-7,  460- 

Inflation,  15,  23,  25,  64,  78,  89,  91,  '08,  125, 
148,  221,  224,  232,  258-66,  272,  279,  334, 
3t)S,  410,  424,  442,  461,  467-8;  doctrine,  276. 

IngersoU,  C.  J.,  200,  209,  364;  J.  300,  302. 

Ingham,  S.,  190,  192-6,  201. 


INDEX. 


481 


t't 


"Inquirer,"  Richmond,  70,  203,  382. 

Insolvent,  bani<,  when,  427. 

Institutions,  republican,  and  banks,  see  Civil 
interats. 

Instruments,  negotiable,  2,  28,  65,  144,  201. 

Insurance,  65,  317. 

Interest,  rate  of,  6,  93,  117,  264-5,  269,  301, 
303,  307,  428;  double,  469. 

Interests,  vested,  26;  harmony  of,  315. 

Internal  improvements,  6,  51,  55,  84,  119,  136, 
"51,  "59>  "75,  202,  227,  235,  237,  245,  248, 
250-7,  260,  263,  270,  315,  317,  330,  341, 
356-9,  361,  397-8,  409-10,  438,  449. 

Intimidation,  445. 

Intrigue,  political,  340. 

Investments,  foreign,  in  United  States,  267,  276, 
282,  424. 

Iowa,  banks  in,  415,  452. 

Iredell's  Reports,  431. 

Issue  Department,  see  "Banking,  issue. 

Jackson,  A.,  142,  147,  190-2,  197,  200,  205, 
208-31,  261-2,  267,  273;  party,  191,  201, 
278. 

Jaudon,  S.,  230,  253,  276,  282,  284,  304-5,  307, 

309,  3 '9,  338,  34",  346,  350. 
Jaudon, — ,  276. 
Jay  Cooke  &  Co.,  467. 
Jay's  Treaty,  44,  53. 
Jefferson,  T.,  35,  48,  135,  383. 
"Jeffersonian,"368. 
Jobbery,  356. 
Johnson,  R.  M.,  128,  201;  W.  C,  243,   325, 

37',  390. 
Jones,  T.,  3-!;  W.,  70,  96,  97,  102-3,  ">5. 
Jones-Lloyd,  see  Overstone. 
Josephs,  J.  L.  &  S.,  267,  269. 
"Journal,"  Albany,  288. 
"Journal  of  Commerce,"  263,  267,  290,  292, 

295,  297,  305. 
Judge-breaking,  127,  129-30,  \%2--\. 
Judiciary,  war  on,  58,  128-38,  408. 
Justice,   120,   131;    administration,  271;   denial 

of,  340. 

Kansas,  banks  in,  453. 

Kelly's  Reports,  317. 

Kendall,  A.,  no,  133,  19-),  197,  214,  216-19. 

".ent.,J.,3i8. 

Kentucky,  127;  banks  in,  58,  80,  90,  109-11, 
120-46,  253,  202,  209,  292,  308-400,  405, 
424,439,  445,460;  trade  and  e.xchanges,  339. 

Kuhn,  C,  283,  307,  340. 

Land,  2,  13,  89,  94,  m,  139,  179,  256,  260-2, 
280. 

Land  banks,  1,  3,  4,  6,  9-11,  19,  25,  51,86, 
244-»;o,  318-19,  332,34',  3^6,  389-90,  412, 
431,  435-6,  see  'Banks  and  agriculture. 

Land-jobbing,  94. 


Land  titles,  58. 

Lapsley  vs.  Brashears,  1 50. 

Law,  see  Civil  authority;    failure  of,    350-1 ; 

international,  349, 
Lee,  — .,  357. 

Legal  tender,  75,  120,  125,  128,  144,  464. 
Let-alone  policy,  188. 
Letcher,  R.  P.,  338. 
Lewis,  W.  B.,  213-14, 
Liberan^as,  61. 
Liberty,  10,  134. 
Lincoln,  A.,  457. 
Littell's  Reports,  130,  142. 
Livingston,  Chanc,  19;  E.,  209. 
Loan  Office,  5,  87,  see  Land  hank. 
Lobby,  340-1,  362. 
Loco-focos,  270,  275,  279. 
Lotteries,  448. 
Louisiana,  204,  361,  382;  bank.s  in,  61,  243-6, 

262,  265,  272,  292,  299,  302,  326,  387-01, 

427,  434-7,  454- 

Macgregor,  J.,  357. 

Mackeinzie,  W.  L,  172,  232. 

Maclay,  W.,  27. 

Macon,  303,  308,  368. 

"  Macon  Specific,"  368,  405. 

Madison,  J.,  14,  26,  44,  68. 

Maine,  263;  banks  in,   168,  262,  289,416-17, 

4'9,  46". 
Malapar,  172. 
Manufactory  Bank,  9. 
Marcy,  W.  L.,  264. 
Marshall,  J.,  142,  143. 
Marshall's  Reports,  110,  125,  132. 
Martin,  J.  G.,  234,  263,  356,423. 
.Martin's  Reports,  318. 
Maryland,  banks  in,  112,  175-6,  262,  292,  347, 

424-5,454,457,461. 
Mason,  J.,  193-5. 
Massachusetts,   155;  banks  in,   1-11,  35-9,  79, 

80,  82,  1 12,  107,-70,  233,  288,  291,  307,  310, 

358-9,  416,  454,  458,  461;  Historical  Society, 

342. 
Mather,  Cotton,  4. 
Mayer,  C.  F.,  312. 
McAlister  &  Stebbins,  411. 
M'Clenahan,  B,,  1  3. 
McCord's  Reports,  1 78. 
McCulloch  xis.  Maryland,  100,  110. 
McCiilloch,  H.,  184,  2=55,  426,  445-7,  466,  468. 
McCulloch,  J.  R.,  266. 
McDuftie,  G.,  198,  200. 
McHenry  — ,  259,  299. 
McLane,  L.,  199,  213-14. 
McLean,  J.,  142. 
McLeod,  343. 

McNutt,  A.  G.,  324-6,  380-4. 
McVickar,  J.,  172. 
Medium,  lack  of,  2,  5,  6,  8,   12,  23,  58,  65,  75; 


g 
A 


\  m 


482 


INDEX. 


\\t 


providing  a,  9,  120,  175,  181,  233,  253,  274, 

407. 
Meigs's  Reports,  327. 
Memorandum  checks,  203. 
Metcalf,  Gov.,  348. 
Michigan,  banks  in,  59,  292,  313, 329-30,  403-5, 

443- 

Migration,  internal,  134-$. 

Mills,  Judge,  138. 

Minnesota,  banks  in,  415,  452. 

Mint,   I,  280. 

Mississippi,  banks  in,  60,  62,  164,  248,  262, 
272,  281,  291-2,  297,  299,  300,  302,  323,  378- 
87,  411,  434;  scheme,  6,   267;  Valley,  89, 

339. 

Mississippi  vs.  Johnson,  385. 

Missouri,  banks  in,  62,  161,  262,292,411-13, 
445.  449-50,  454,  457. 

Missouri  vs.  Lane,  162. 

Mobile,  269-70. 

Money,  2,  3,  6,  28-9,  145,  453,472;  of  account, 
3,  65,  68,  138,  145,  355,  423,  428,  436,  453-4; 
"  George  Smith's,"  450-1 ;  lack  of,  see  Med- 
ium; power,  4,  18,  26,  110;  economy,  2,  3. 

Monopoly,  122,  298. 

Monroe's  Reports,  128,  132,  137. 

Moonshine,  319. 

Moralit}',  291. 

Mormons,  255. 

"  Morning  Chronicle,"  284. 

Morris,  R.,  12-17;  Gouverneur,  14-17. 

Mortgages,  3 12- -.3;  privileged,  245,  248,  397; 
security  for  bank  notes,  337,  360,  423. 

Muter,  G.,  127. 

Nantucket,  172. 

"National  Gazette,"  189. 

"  National  Intelligencer,"  202. 

Nebraska,  453. 

Newbold,  347. 

New  Hampshire,  banks  in,  8,  17,  112,  168,  417, 

461. 
New  Jersey,  banks  in,  70,   172,  262,  292,  306, 

360,  422,  429,  456,  461. 
New  Orleans,  208-9,  278. 
New  York,  banks  in,  4,  42,  64,  83,  112,  171-4, 

235,262,  267,  270-1,  286-01,  294,   301,  304, 

306-8,  311-14,  335-7,  347.  359-^  1 ,  4'  7,  420-8, 

454,   4s6,    458,    460-1,    see  Tolicy;   Canal 

Department,  429;  Warehouse  and  Security  Co. 

467. 
Niles,  H,,  5!,  81,  96,  103,  104,  106-7,  432- 
"Niles'  Register,"  51,  56,  70,  78,  84,  99,  100, 

no,  112,  116-18,  122,  1 25-352, /)(7ssu«;  360- 1, 

;7Q-8o,  ;8o,  403,  405-6. 
Non-Capitalists,  123,  139,  270,  353,  437. 
Notes,  see  Vaiih  notes;  Confederate,  436;  Gir- 

ard's,  201;  New  Orleans  city,  437. 
Note-holders,  10,  11,40,88,  150,  164,  17s,  241, 


^^i,  517,  322,  3S9,  380,  394,  400,  402,  419- 

20,  4>s,  452,  405. 
North  Carolina,    banks    in,  45,   85-6,    176-8, 

238-9,  262,  347,  365,  430,  457. 
Noyes,  A.  D.,  470. 

Occupying  claimant,  128,  135. 

Oglethorpe  University,  241. 

Ohio,  banks  in,  25,  59,  91,  115,   152-6,   2s?, 

292,  327,  398,  400-3,  405,  424-5,  427,  439-42, 

445-6,  460. 
Oregon,  banks  in,  415,  454. 
Organization,  industrial,  2;  social,  119. 
Osborne,  R.,  153-5. 
Osborn  vs.  the  Bank  of  the  United  States,  101, 

"i4,-5. 
Outlawry,  91. 
Overstone  tract,  2,  8. 
Owsley,  W.,  138. 

"  Packet,"  New  York,  19. 

Paine,  N.,  1;  Thos.,  13. 

Palmer,  H.,  259. 

Panic,  99,  186,  217-18,  222,  263,  266,  297,  337, 
343,  355,  389,  424-8,  452,  4^7,  467;  see 
Cn'iiiand  Distress;  remedy,  186,425,457-8, 
470. 

Paper  money,  223,  274,  316,  see  Bills  of 
Credit;  in  England,  77;  federal,  70,  96,  no, 
'75,   197-8,  223-4,  280,  460-1,  400-8,  471-2, 

redemption,  468;  State,    19,   24,  45-7, 

59,  85,  115,  176-7,  344,  356,  371,  see  /ludi- 
tor's  certificates. 

Par,  meaning  of,  324,  382,  387,  411. 

Parson's  Reports,  399. 

Parton,  J.,  197,  213-14. 

Paterson,  336. 

Patronage,  286. 

Peace,  00,  104. 

Peck's  Reports,  149. 

"  Peep  into  the  Banks,"  173. 

Pennsylvania,  51,  4^7;  banks  in,  14,  i,,  3";,  44, 
83,  112,  174-5,236-7,262,272,274,287-8, 
289-02,  301-4,  306,  338-47,  3io--!,  55=;-6, 
361-4,  425,  428-30,  4S4,  457-8,  461,  464, 
see  ToUcy  ;  relief  system,  343-7,  353-5,  361-2. 

Pension  agency,  104,  190,  221,  229. 

Peters'  Reports,  128,  140-3,  201,  323,  349. 

Pickering's  Reports,  352. 

Pike's  Reports,  392. 

Pijtareens,  185. 

Planters,  146,  299. 

Platform,  460. 

Plutocracy,  26,  196,  211. 

Policy,  New  York  vs.  Philadelphia,  227,  284, 
2S6-01,  206,  299,  301,  105-7,  340-1,  356. 

Political  economy,  280,  201. 

Polk,  J.  K.,  211,  213,  222,  224. 

Poor,  see  Non-capitalists. 


INDEX. 


483 


Pope,  ).,  20. 

Popular  leaders,  100,  119. 
Population,  518. 
Porter,  D.  R.,  350. 
Postmaster-General,  277. 
Post  notes,  64,  65,  79,  152,  '6?,  234,  237.  242, 
2SI-2,  268,  272,  27:;,  396,  299,  501,  304,  307, 

322-s,327,  3}3,  33^  351-3.  304,372.378- 

82,  300. 
Vremunire,  7,  10. 
President,  see  Executivt. 
Press,  subsidizing,  202. 
"  Price  Current,"  355. 
Prices,  424. 

Prime,  Ward  &  King,  283. 
Process,  summary,  20,  40-1,  8;,  16s. 
Property  laws,  see  Stay ;  banks,  245. 
Prosperity,  6b,  74,    171,   181,  2bo,  424-5,  457; 
.    policy,  89,  123-4. 
Protection,  63. 
Proxy,  7;,  96,  343. 
Psychological  elements,  316. 
Public  stocks,  see  TDcht,  public. 
"Public  Ledger,"  353. 
Publicola,  64. 
Punctuality,   19,    23,  54,   109,   131,   146,  339, 

411  ;  penalty  of,  161. 

Quackery,  100. 
Quinn,  111. 

Race-horse  bills,  q;,  186,  206-7,  212,  217,  ■526. 

Raguet,  C,  37-8,  56,  64,  75,  78,  83,  174-^^8 
passim. 

Railroad,  Harlem,  429;  Louiiville,  Cincinnati, 
&  Charleston,  see  ^ank,  Southwestern; 
New  York  &  New  Haven,  424;  Northern 
Pacific,  467;  Pennsylvania,  429;  Pennsyl- 
vania &  Ohio,  429;  Vermont  Central,  424; 
building,  467. 

Railroads  and  banks,  239,  24S-6,  249,  250,  252, 

425. 
Rathbone,  270. 
Receivers,  malfeasance,  395. 
Recognizance,  see  Stay. 
Redemption,  see  Stay. 
Reed,  G.  B.,  41;  Jos.,  13-14. 
"  Register,"  Mobile,  321. 
Relief,  75,86,  119-166,   106,  210,  314-1=;,  326, 

341,  353,  355,  361-2,  367,  373,  379,  307-8, 

3qq,  427;  party,  138. 
Renewals,  iq,  9=;,  139,  189,  339. 
Replevin,  see  Stay. 
"  Reporter,"  Harrisburg,  306. 
Repudiation,  318-19,  326,  371,  376,  381-7,  304, 

410-1 1. 
Resolutions,   316;  of  1798,  51,   15:;,  see  .S7.i/c' 

rights;  of  1816,  74,  294. 


Resumption,  66,  71-88,  102,  i49-'io,  iSi,  27;, 
277,  280,  283-4,  280-93,  295,  297,  2qq,  300, 
305-11,  317,  321-2,  326,  328,  330,  334,  318- 
346,  355-56,  364-74,  379,  391,  398,  40O1  4^5, 
428,  430,  43q,  468;  in  Europe,  116. 

Resource  in  the  currency,  460. 

Revulsion,  30,  103,  105,  109,  117,  358,  365, 
389. 

Reynolds,  j.,  93,  I'iq,  161. 

Rhode  Island,  banks  in,  7,  39,  170,  235,  306, 
310-1 1,  461. 

Riddle,  J.  M.,  350-1. 

Riots,  231,  271,  323,  364,  369,  379,  389,  391, 
307,  400,  407. 

Ritner,  J.,  272,  202. 

Rives,  W.  C,  216. 

Roads,  work  on,  322. 

Robb,  J.,  436. 

Robinson's  Reports,  352,  361-3. 

Rothschilds,  305. 

Rowan,  J.,  1 10,  130, 

Run  for  paper,  355. 

Safety  fund,  210,  216,  232-3,  235-6,  271-2,  287, 

307-8,313,  32q,  330,  335-7,  359-60,420-9, 

441,  see  O^ew  York. 
Sargent,  N.,  200. 
Scaling  verdicts,  127,  132,  159. 
Scammon's  Report,  158. 
Scandal,  legislative,  43. 
Schuyler  frauds,  424. 
Schwab,  361. 
Scribbling  process,  86. 
Secession,  457. 
Senate,  221. 

•'  Sentinel,"  Vicksburg,  277. 
Seward,  W.  H.,  281. 
Seybert,  A.,  56. 
Shares,  qu,ilifled,  419. 
Shingling,  445. 
Shelby  vs.  Bacon,  363. 
Silver,  2,  4,  7,  15,  58,  61,  77,  79,  80,  82,  95, 

100,  203,  224,  460. 
Simultaneous  transaction,  32,  78,  2m. 
SLive  labor,  270. 

Smedes  and  Marshall's  Reports,  251,  370,  380. 
Smith,  A.,  26. 

Smith  &  Buchanan,  98,  103. 
Smithson,  296,  314. 
Smithsonian  Institution,  395. 
Sneed,  A.,  133. 
Social  antagonisms,  26  ;    interests  and  banks, 

196,  224,  353,  see  "Banks,  antipathy  to. 
South  Carolina,    196;  banks  in,  47,  80,   115, 

177-8,  230,  292,  365-7,  424,  427,  431,  451. 
South  Sea  Scheme,  6. 
Southwestern    Railroad  and   Bank,   see  under 

Vank. 
Sovereign,  120. 


484 


INDEX. 


Sovereignty,  26,  51,  141,  152. 

Specie,  63,  6s-0,  74,  77-8,  81,  87,  95,  09,  1 16, 
169,  175-82,  180-90,  202-4,  224,  234,  238, 
265,   268,    272-3,    278,   280,  283-6,  3CX),  304, 

307,  320,  329-30,  334,  336,  347,  35S-6,  161, 
370,  401,  404-s,  4'')-"4.  424,  4271  4^6,  447, 
457-9,  466;  drain  of,  23.  35,  58,  114,  189, 
210. 

Specie  Bank,  9,  10  {circular,  261,270-1,280, 
285,292,  294;  funds,  37,  78,  238-9,  208; 
payments,  see  Suspension  and  Resumption; 
reserve,  336,  418-19,  473. 

Speculation,  17,  33-4,40,  52,67,  69,  76,  89,9-, 
los;,  107,  125,  220,  223,  231,  234,  2';6-65, 
396-7,  303,  321,  325,  420,  467,  see  Stock- 
jobbing, Land-jobbing  and  U.  S.  Bank  of 
Pain. 

Spencer,  J.  C,  96-7. 

Spoliations,  21s. 

Squatter,  see  Occupying  claimant. 

State,  316;  creditors  of,  303;  liability  as  stock- 
holder, 391;  suability  of,  141,  180,384,  396. 

State  115.  Williams,  437. 

State  rights,  26,  52,  54,  58,  100,  110,  127-8, 
"3J,  U4-5,  '^8,  "54,  '60,254,349;  party, 
196. 

States,  collision  between,  82. 

Statistics  of  banks,  140,  207,  337,  358,  456, 
461,472. 

Stay  laws,  120-2,  125-39,  '46-50,  156-62,  24s, 
372,  314,321,356,370,  379,  39",  397,  401-2, 
405-6;  excuse  for,  158. 

Stenhouse,  25s. 

Stock,  fraudulent  issues,  399,  424;  jobbing,  78- 
9,  81,  95,  236;  note,  32,  45,  62,  72,  81,  iQo, 
206,  236,  310,  315,  328,  348,  404;  subscrip- 
tion, 231,  251. 

Stockholders,  247,  315-16,  318,  323,  432-3,452; 
State  advances  for,  256,  405. 

Store-pay,  8. 

Story,  J.,  143,  334- 

Stringency,  see  'Distress. 

Subsidies,  163. 

Sub-Treasury,  see  Treasury,  independent. 

Suffolk  system,  8,  36,  39,  66,  82,  167-71,  233-5, 
311,  401,  416-18,  422,  429,  443,  465. 

"Sun"  New  York,  174. 

Surplus  revenue,  199,  231,338,  243,261-5,279- 
281,  333,  348,367,392. 

Suspension,  37,  63,  68-9,  75,  90-1,  95,  105,  121- 
2,  173-6,  185,  223,269-74,  280,  283,  289, 
295,  304,  306-7,  3 1 4,  3 '7,  319-470,  passim; 
penalties  of,  suspended,  271,  287,  314,  330-1, 
3-0,  343-4,  347,  364,  399,  406-7,  449;  waiver 
of,  367. 

Swindles,  316. 

Tammany,  232. 

Taney,  R.  B.,  142,  314-15,  217,  219-22,  332. 


Tariff,  104,  180,  200. 

Taylor,  J.,  27. 

Taxation,  315-16,  408,  410. 

Taxpayers,  315. 

Taxes  remitted,  228,  240,  242,  248,  315,  317, 
331,397,408. 

"Telegraph,"  202. 

Tenantry,  155. 

Tennessee,  banks  in,  60,  91,  146-52,  352-3,  262, 
269,  326,  397-8,  457-9. 

Territories,  banks  in,  10,  53,  60,  248,  318,  370-2, 
450,  453. 

Texas,  banks  in,  415,  437. 

Thomas,  E.  S.,  3;,  47,  70. 

Thompson,  J.,  383. 

Three  per  cents,  304,  206-7,  210-1 1,  217. 

Thrift,  316. 

"Times,"  Chicago,  449;  London,  282,  343; 
New  York,  2 1 7. 

Toland,  H.,  211. 

Toiics,   13. 

Townsend  w.  Townsend,  140,  163. 

Trade,  1,  58,  see  Banking  and;  balance  of,  2, 
24,  74;  internal  of  United  States,  187;  preju- 
dice of,  6. 

Transaction  notes,  320. 

Transylvania  University,  136. 

Treasury  Circular,  261-2,  278. 

Treasury  Department,  16;  administration,  270; 
embarrassments  of,  66-9,  277-9,204-5;  losses, 
67;  Secretary,  33,  35,  49,  63,  66-8,  74-6,  98, 
101-2,  111,  114,  186,  194,  315,  217,  210-21, 
22Q,  263-5,  279-81,  292,  348,  356,  468; 
trust  funds.  280. 

Treasury,  the  Independent,  199,  277-9,  348-9, 
414,  459;  of  Ohio,  442. 

Treasury  drafts,  277-8,  281,  356;  notes,  56,  63, 
66-8,  74,  224,  280-1,  294,  40"!,  460-1,  460, 
468. 

Treaty  of  Ghent,  69. 

Trumbull,  J.  H.,  1,  4,  6. 

Tyler,  J. ,27,  222,347-9,353. 

Unauthorized  banks,  see  Civil  authority. 

Union,  see  State  rights. 

Union  Trust  Co.,  467. 

United  Society  vs.  Eagle  Bank,  171. 

"  United  States  Gazette,"  273. 

United  States  vs.  Bank  of  the  United  States, 

363. 
Usury,  132,  151,  176,  183,  201,  235,  }}9. 

Value,  67,  470. 

Valuation  law,  see  Stay  ;  for  taxation,  260. 

Van  Buren,  M.,  173,  210,  314,  370,  340. 

Vaux's  Reports,  351. 

Vermont,  banks  in,  40-1,  232-3,  417. 

Virginia,  121;  banks  in,  11,  30,  44,  51,  70,  77, 

83-4,  237,  363,  392,  314,  347,  363.4,  430, 

454,  457- 


i  ' 


i 


INDEX. 


485, 


Visitation,  245,  287,  318,  321,324,330,  152, 
360,  415. 

W's,  THE  Three,  266-7. 

Wages,  8,  103,  260,  467. 

Wali<er,  A.,  419,  463;  R.  J.,  326. 

Wanton,  Gov.,  7. 

War,  the  Civil,  10,  6s,  134,  140,  220,  222,  281, 
414,  436,  454,  460;  the  Crimean,  424;  Revo- 
lution, 10,  12,  19,  143;  of  1812,  45,  53, 
63,  68,  93. 

Wars,  Napoleonic,  117. 

Watts  &  Sergeant's  Reports,  237,  340,  363. 

Wayne,  J.  M.,   142,  199. 

Webster,  D.,  28,  186,  193-4,  200,  219,  221,  248, 

278,  3<8.  349-50,  354- 
Wendell's  Reports,  42,  60,  25a,  41 1. 

Wharton's  Reports,  340. 
Wheaton's  Reports,  134,  155. 
Whig  Almanac,  354. 
Whigs,  281,  287,  347.354- 
White,  H.,  451;  H.  L,  60,  109,  146-7,  isi. 
Whitney,  D.  R.,   167-70,  234,  291,  311,  417; 
R.,  203,  214,  ai9. 


Whittlesey's  Reports,  450. 

Wickliffe,  C.  A.,  129-30,  144,  187,  257. 

Wiggins  Loan,  i  iq,  161. 

Wilder,  S.  V.  S.,  302-3,  308,  345. 

Williams,  G.,  73. 

Williams  Ds.  Blair,  129-30. 

Willing,  T.,  16. 

Wilson,  T.,  244. 

Winslow,  Lanier  &  Co.,  384. 

Winthrop,  Gov.,  i. 

Wisconsin,  banks  in,  415,  448,  450-2,  4S4. 

Wise,  H.  A.,  430;  J-.  6. 

Wolcott,  O.,  34. 

Woodbury,  L.,  193-4,  214,  224. 

Woodward,  J.,  42,  6s. 

Wright,  S.,  172,  219,  29s. 

Writs,  134-5. 

Ye  ATM  AN,  Woods  &  Co.,  269. 
Yorke,  E.,  361,  382. 

Zeal,  party,  1 19,   198. 


